French aide urges EU to suspend state aid rules

PARIS, Dec 1 (Reuters) - The European Union should suspend its rules on state aid to help countries deal with the global financial crisis, a French presidential aide said in comments published on Monday.

Paris wants to shore up the capital positions of its banks under a plan that is being reviewed by the European Commission to ensure it does not give the French banks an unfair advantage over competitors in breach of EU competition rules.

France, home to some of Europe's biggest carmakers, has also promised to help the ailing auto industry. circumstances called for special measures.

Asked if the EU should suspend its rules on state aid, Henri Guaino, a senior adviser to President Nicolas Sarkozy, told business newspaper La Tribune in an interview: "We need exceptional rules for an exceptional situation."

"But the European countries must coordinate with each other to avoid each country's policies harming the others," he said.

The Financial Times newspaper reported on Saturday the European Commission, the EU's executive, was demanding the banks reduce their lending in return for state support. The Commission denied blocking the plan and said it was working with Paris to secure approval as soon as possible.

Paris announced in October it would lend 10.5 billion euros ($13.59 billion) to the six top French lenders before the end of this year to prop up their capital reserves following a freeze in global interbank markets.

Paris has said that without state support, lenders would have shored up their capital positions by reducing loans, which would have dealt a new blow to the euro zone's second-biggest economy.

Asked what measures could be taken to counter the economic downturn, Guaino said a cut in value-added tax could be useful but needed to be approved by all 27 EU member states to work.

He also called for a shake-up of the car industry.

"We need a real industrial policy for the automobile sector, to handle the transition to new means of transport -- the clean car, the electric car. And that will undoubtedly raise the issue of European competition policy and the state aid system," Guaino said.

Guaino favoured the European Central Bank cutting interest rates but he did not say when he thought it should do so. (Reporting by Francois Murphy, Editing by Timothy Heritage)