French captive Banque PSA has received a €7bn (£5.6bn) state guarantee from the French government, in return for concessions from carmaker PSA Peugeot Citroen.

The government has said it will underwrite Banque PSA’s financing if the manufacturer appoints government and union representatives to its board. Banque PSA will also stop issuing share dividends for the duration of the deal.

Peugeot also said it was looking for an agreement with creditor banks to provide €11.5bn of refinancing.

The news follows predictions of a 9% drop in European market share for the company across the year, and an announcement in July that it will cut 8,000 jobs and close its Aulnay plant. The French government expects Peugeot to reconsider the scale of these cuts in light of the aid deal.

The deal could still be derailed if the European Union decides it breaches their rules on competition, with Reuters reporting that Volkswagen may raise the issue with the EU’s Competition Commission.

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