Nov. 21 (Bloomberg) -- Neelie Kroes, the European Union’s antitrust chief, said nations in the 27-member EU should resist the “temptation” of an automobile industry bailout, arguing that such aid would harm the bloc’s economy.

“The temptation may be greater now for member states to give subsidies that can result in their economic problems being exported to their neighbors, but that would only worsen the economic difficulties,” Kroes said at a conference in Brussels today.

Governments in the U.S., France and Germany are considering aid for car companies, which have seen sales plummet in the face of a global recession. In Germany, General Motors Corp.’s Opel unit has asked the government for more than 1 billion euros ($1.25 billion) in credit guarantees.

Industry groups said that Kroes’s comments ignored the financial difficulties plaguing automakers.

“The industry needs to see collective action by EU member states to restore consumer confidence,” said Paul Everitt, chief executive officer of the Society of Motor Manufacturers and Traders. “If the European Commission cannot move swiftly enough to prevent long-term damage to our industrial capability, then it is essential national governments take appropriate action to help bridge this difficult period.”

‘Plenty of Scope’

Kroes said EU rules give governments “plenty of scope” to support the car industry without distorting competition, pointing to provisions that allow grants for entrepreneurs, research, education and environmental projects.

EU rules prohibit governments from giving grants to struggling companies. Such aid would harm competition because it would give companies in certain countries an unfair advantage, Kroes has argued.

In Europe, where car sales fell almost 15 percent in October, the sixth consecutive monthly drop, auto companies are lobbying the European Union for 40 billion euros ($50 billion) in loans.

German Chancellor Angela Merkel said her government will decide on Opel’s unit by Christmas. The state government in Hesse, where Opel employs 15,000 people, agreed to give the company and regional parts suppliers loan guarantees of as much as 500 million euros.

France, U.K.

Carmakers in the U.K., where sales slid 23 percent in October, have asked for tax cuts and permission for their finance companies to access funding available to British banks. French Finance Minister Christine Lagarde called for national and European “actions” to “support” the industry on Nov. 17.

The U.S. Congress is trying to reach a compromise on giving American automakers $25 billion they say they need to survive the next year, either by speeding up the use of funds already approved to develop more fuel-saving technologies and models or providing a new source of funds. Democratic congressional leaders put off action on loans until next month, saying company chief executives haven’t yet made a case for the help.

Kroes said today that governments shouldn’t begin bailouts because that would result in the “costly trap of a subsidy race.” EU nations shouldn’t give subsidies to car companies as a response to proposed support for U.S. automakers, she said.

“The car industry might want politicians to take that road, but the European economy and European taxpayers will be better off if politicians choose another, more effective, route,” Kroes said.

Gian Primo Quagliano head of research at Bologna, Italy- based research firm Promotor, said that the EU might have to match any U.S. aid to preserve competition.

“If the U.S. gives aid to carmakers, it’s fair to have them in Europe as well,” Quagliano said in an interview earlier this week. “I can’t see how aid to Opel could be treated as illegal state aid. What can actually spur the industry are measures to support demand.”

To contact the reporter on this story: Matthew Newman in Brussels at Mnewman6@bloomberg.net.

Last Updated: November 21, 2008 04:38 EST