After getting approval that a plan to provide funding for its own beleaguered auto manufacturers didn’t violate EU rules against subsidies, France is now pushing for more help for car makers in other countries. The call came a day after the EU’s second-largest member backed down on a bail-out plan which would have obliged producers to give preferential treatment to French factories and suppliers.

French President Nicolas Sarkozy now wants the EU as a whole to take steps to keep the bloc’s auto producers afloat, diplomatic sources told Deutsche Presse-Agentur (dpa.) But his call looked set to fall foul of EU criticism almost immediately, with Swedish Prime Minister Fredrik Reinfeldt saying that the car industry in Europe “has overcapacity, so it needs to be downsized ... in a competitive manner, according to state aid rules.” Sweden is one of the main players in Europe’s car industry, being home to firms such as Volvo and bankrupt GM subsidiary Saab.

It is the second time that Sarkozy has raised the theme at an EU meeting. He first made such a proposal at a formal EU summit which he chaired in Brussels on October 15, 2008, and this time he called for the EU to promote the creation of “strong European industrial groups” to fight off competition from abroad, after a meeting with Italian Prime Minister Silvio Berlusconi, who is trying to help Fiat and his own country’s automakers as well.

Sarkozy’s initial plan to give a multi-billion-euro loan to French car makers Citroen and Peugeot in return for a promise to keep French factories open and only use French suppliers sparked a furious storm in Europe as other countries, such as the Czech Republic and Slovakia, who are home to many French car factories, protested bitterly. The Czechs, who currently hold the EU’s rotating presidency, called for the EU summit to reject the idea of protectionism.

European Commission officials said that France had promised that any aid to the car industry would be given without demanding special treatment for French sites and suppliers and the Commission then drew up a list of measures which member states could use to boost their car producers. The Brussels-based body has also called for the bloc to spend up to five billion Euro to support the development of cleaner engine technology in Europe. German Chancellor Angela Merkel said that the European Investment Bank should be given more funds so that it could sponsor the development of clean engines.