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Europe to probe Infineon aid package

May have to pay $194m back to German govt.

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European Commission investigators are to take a close look at the $194 million handout granted to chip maker Infineon by the German government. The financial package may have broken EC competition rules.

Certainly that's the EC probe's starting point. "The Commission doubts the aid is compatible with the EC treaty," the organisation said in a statement issue yesterday.

The cash was used by Infineon to construct a $974.43 million DRAM plant in Dresden. The German government made the payment to help secure 1700 jobs at the plant and a further 1000 jobs with contractors and suppliers.

Ironically, the investigation into Infineon's financial assistance follows complaints made by the chip maker that a rescue package offered to Hynix violated World Trade Organisation regulations on government subsidy.

The Infineon appears to have been triggered by the decline in the semiconductor market. The EC places strict limits on the amount of assistance member governments can give to industries in decline. Building a memory plant at a time when there is massive overcapacity may well seem to EC officials to be a sign of unwarranted state aid.

Infineon's defence will likely stress the cyclical nature of the chip business and the need to invest continually in new processes and methods in order to remain competitive. A company spokesman described the investigation as a "normal procedure" and said it would not threaten work at the plant, which is near completion.

If the Commission decides that the financial support package was unwarranted, Infineon could be forced to pay it all back to the German government. ®

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