Nicolas Sarkozy announced that the French Government will provide up to 7 billion ($8.9 billion dollar) euro in emergency financing to domestic car makers Renault and PSA Peugeot-Citroën in the form of low-interest loans repayable over the next five years.

One of the conditions of these loans it that both automakers must pledge to retain employment in the region and ensure the investment is aimed at using French component makers (keeping the money at home) in return for the funding.

Though PSA Peugeot Citroën was opposed to these conditions it agreed to use three billion euros ($3.81 billion dollar) loan, it's part of the package, to develop fuel-efficient, low-emission vehicles. Included in the funding will also be research into start/stop systems, hybrid power-trains, plug-in hybrid technology, and electric cars.

Renault, which will also receive three billion euros, is the more indebted of the two companies. For it's part, Renault pledged to use the funds to "...withstand the crisis and finance its strategic projects in France, particularly the development of vehicles with zero or very low CO2 emissions."

PSA and Renault also pledged to allocate funds for new factory building projects in France as well as funding green technologies. PSA in particular agreed to maintain employment at current levels by boosting its current auto making programs with new models in each of it's five assembly plants. This includes a new engine by 2012.

Renault is also agreed to build a full-electric vehicle "once the necessary profitability conditions are in place."

Both companies will be asked to shore-up balance sheets and cash reserves with the future income. Renault and PSA have also been asked to curb executive bonuses and shareholder dividends as part of loan agreement. Also, in return both companies will double their contributions to a government-run fund to help the domestic supply chain. This increase in contributions rises from one hundred (100) million euros ($127 million) to two (200) hundred million ($254 million) euros.

The loans will have a five year life at 6% interest. This is well below the current global interest rates. Both PSA and Renault's financing companies will have access to an addition 500 million euros ($635 million) from the French government through 2009.

The loans became necessary when banks stopped lending to the car-makers.

Nicolas Sarkozy's speech on the matter sparked anger from other European Union members when he said "...that it is unjustifiable that French car brands made abroad, for instance in the Czech Republic, should be sold in France."

Financing still needs to be approved by the EU Competition Commission in Brussels. This to insure that the loans do not break EU rules.

Sweden's Finance minister Anders Borg said the French plan "is problematic for Sweden." Borg stated that the financial aid package was the main problem, but not the only condition that threatened the ability of the EU's twenty-seven members to work together to confront the economic crisis.

On the other hand France seems to be reacting to the total lack of action by the EU Competition Commission to stem the economic crisis. The commission has so far been unable to formulate a strategy among member states as those states scramble to maintain employment in the automotive industry.

In fact, so far the EU commission only seems to react to threats of nationalization without being able to get member states to pull together as a cohesive unit to confront the crisis.