Lord Mandelson yesterday urged European leaders to prepare plans to avert the kind of international row that rocked the sale of GM Europe, pitching country against country in the fight to preserve jobs.

With a swipe at his former institution for being too flat-footed to transform the European Union’s car sector, the Business Secretary called for the European Commission to take a more proactive role in funding industry and innovation.

Clearly exasperated by the hurdles in trying to save Vauxhall, Lord Mandelson, a former Trade Commissioner, called for the EU to plan a competitive future for pan-European industries, such as carmaking, that need to be restructured to stay competitive.

“We have industries, like the car sector, that have excess capacity, that almost all analysts recognise need to be rationalised on a European scale, but [there is] no politically agreed way of even discussing this,” he said during a speech delivered in Brussels.

Answering questions afterwards about his experiences dealing with the fallout from General Motors, he said: “If we could have brought about a rationale which could have resulted in a pan-European additional car manufacturing platform able to compete with the best in the world, then we might have been better off, but who was saying so? Who was leading it? Who was organising it? I wrote a letter to Gunter Verheugen [the Industry Commissioner] saying the Commission must give a lead, but did it? It called a meeting. Great. Thanks.”

He urged José Manuel Barroso, the Commission President, to redraw state-aid rules to allow more investment in high-tech companies using a new EU public-private venture capital fund to get round the shortage of resources for smaller companies.

Core EU spending and policy need to be refocused around innovation if Europe is to stand a chance of competing with the duopoly of China and the United States in years to come, the Business Secretary said.

“EU rules risk suppressing investment in innovation,” he said, in an attack on competition policy that is seen by the more liberal European economies as stifling business practice. “Change is needed. Our rules need to encourage private capital to invest and innovate and state-aid rules need to provide the right kind of space for governments to encourage and facilitate such investment.”

Lord Mandelson pleaded for the EU to adopt a more positive view of venture capital. “Since I returned to domestic British politics and started doing my economic job, a main issue for me has been that there is a structural problem in capital markets, which precedes the credit crunch. Innovative smaller companies are experiencing greater difficulty in getting access to growth capital than larger, more established companies.

“We are trying to think of new policy instruments that might enable ministers to affect more change in capital markets than we have thought possible until now.”

Lord Mandelson called for a controversial planned European crackdown on hedge funds to be tested rigorously to ensure that it did not stifle the flow of funding further.

“It is vital that this is fully consulted on and carefully designed. We have to make sure that we do not cut off important sources of venture capital or do anything that makes it harder to manage venture capital investments within the single market,” he said.

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