Germany is to investigate whether a SKr2 billion (€221 million) public investment package unveiled by the Swedish government on Tuesday constitutes illegal state aid to General Motors, in the latest stage of the tussle between the two governments over job cuts, the Financial Times (FT) reported.

The German economics ministry reportedly said Berlin wanted to ensure the planned investments in road and rail links between the GM-owned Saab plant in Trollhättan and the port city of Gothenburg on Sweden's west coast, "did not contravene European competition law".

The FT said that the governments in Berlin and Stockholm have been fighting to preserve jobs in their respective automotive industries since GM said last month it would axe 12,000 of its 62,000 European workforce. The bulk of the cuts will hit Adam Opel, its German brand, based in Rüsselsheim. GM has also asked the Trollhättan and Rüsselsheim plants to bid for the right to assemble mid-sized models for both brands starting in 2008, forcing not only the respective managements - who had until midnight on Monday to submit bids - but also the governments into a 'beauty contest'.

The Swedish government's announcement followed the disclosure by Germany that it had offered GM its own incentives to boost the appeal of Rüsselsheim, the Financial Times said.

The paper noted that Berlin and Stockholm have insisted they would not contravene the EU ban on state aid to companies but GM's move coincides with a rising interest in "active" industrial policy, interventionism and national champions among European leaders. To enhance the appeal of Rüsselsheim, Berlin has offered to co-finance workers' training using the Federal Labour Agency, which experts reportedly said was equivalent to aid.

The FT added that the German government also intends to support Opel in price negotiations with its electricity whose prices are much higher than those in Sweden.

The paper noted that the German government has kept a tight lid on its negotiations with GM, only publicising its incentives after opposition criticism that it was not doing enough for jobs.

Meanwhile, the FT added, Stockholm has taken a more public approach with Göran Persson, the Swedish prime minister, making a highly publicised visit to GM's European headquarters in Zurich.

According to the Financial Times, Thomas Ostros, Swedish industry minister, insisted that the planned spending was not state aid, but part of an investment package for the region of Götaland.