The chances of a soft landing for Volvo – should Ford divest the Sweden-based carmaker - have improved. 

The European Commission has approved Swedish government loan guarantees covering 90% of the E500 million that Volvo plans to borrow from the European Investment Bank (EIB) to help develop green models. 

Brussels said last Friday that it was authorising the guarantee from Stockholm, under temporary liberal state aid controls helping European industry cope with the recession.

European Union competition commissioner Neelie Kroes said: “The state guarantees would contribute to Volvo’s investment project for environmentally-friendly cars without giving rise to undue distortions of competition.”

Sweden’s enterprise minister, Maud Olofsson, welcomed the news for boosting “the prospects for Ford and Volvo [to] access loans from the European Investment Bank”.

She has been talking to Ford about its Volvo plans while considering whether to back the loan. The EIB had already offered financing, but wanted a third-party guarantee first.

The money will be paid this year and next and fund much of a planned E1.9 billion investment to develop emission reductions and energy efficiency. 

Volvo recently announced a joint venture with Swedish energy company Vattenfall to develop electric cars powered from standard plugs by 2012.

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