EU Scrutinizes PSA Bond Guarantees, Restructuring

The European Commission has launched an in-depth investigation into whether the French government's €7 billion in bond guarantees to PSA Peugeot Citroen's finance arm violates EU fairness rules.

The Brussels-based organization also says it will examine whether PSA's turnaround plan will be sufficient to restore the company to viability without further state aid. PSA's restructuring includes selling assets, cutting 11,200 jobs in France and closing an assembly plant outside Paris.

France agreed to the financing guarantees last October to help Banque PSA hold down borrowing costs, thus enabling the unit to continue making loans to PSA's customers at competitive interest rates.

The EC gave temporary approval in February for an initial €1.2 billion guarantee for the bank. But it has ruled that France's assistance constitutes support for the entire company. The regional body says it also is probing an €86 million government loan to PSA.

France says the aid was "completely in line" with European law.