Deutsche Post may Have to Pay Back Millions

570 million euro ($ 538 million) is a lot of money. With 570 million euro, you could buy stamps to send more than one billion letters in Germany. You'd be spending a long time writing letters to use up all of your stamps...

Actually, if you bought stamps worth 570 million euro now, you'd be doing the German postal service Deutsche Post a huge favor. Deutsche Post may just have to pay exactly that amount to the German government because it violated EU rules for government subsidies.

Packing money into the parcel division

According to a report in Friday's Financial Times, EU regulators have found that Deutsche Post unfairly subsidized unprofitable branches of its business. The paper writes that Deutsche Post poured profits achieved through its mail monopoly into its loss-making parcel division.

Deutsche Post

on Friday denied these charges and said it had never received any subsidies from the German government. It said the figures quoted by the Financial Times were pure speculation.

The EU commission in Brussels was unwilling to comment on Friday and said a decision hadn't been reached on this issue. It's expected EU competition commissioner Mario Monti (photo) will make an official announcement on Wednesday.

Is Deutsche Post illegally cross-subsidizing?

The case against Deutsche Post was brought to the attention of the EU's competition watchdog three years ago by one of the German postal service's biggest competitors: United Parcel Service (UPS). Since then, the EU commission has been investigating the allegations brought forth by UPS.

The EU Commission has tried to determine whether Deutsche Post is violating EU regulations by cross-subsidizing the different branches of its business: German law obliges Deutsche Post to deliver mail and maintain post offices everywhere in the country – even in remote areas where this isn't profitable (photo). In return for guaranteeing that service, the German government granted Deutsche Post a monopoly and fixed the prices for some of its services. The government now says that Deutsche Post didn't do wrong if it used some of those profits to restructure its deficit-making parcel branch.

But according to EU rules, any profits coming out of such a monopoly could fall foul of EU regulations on state aid.

570 million is peanuts

For Deutsche Post, the whole affair is basically about UPS trying to get an edge on the competition. Unnamed Deutsche Post officials said UPS just triggered the EU commission's investigation because it wanted to force the German company to raise its prices for delivering parcels.

But regardless of what the EU competition watchdog announces next week – even if Deutsche Post has to pay back 570 million euro to the German government, that shouldn't really hurt the German postal service. Deutsche Post's coffers are filled to the brim. Its assets are estimated to be worth a few billion euro – and compared to that, even 570 million euro would be peanuts.