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GM's decision to back out of the sale of its European operations this week was a huge embarrassment for German Chancellor Angela Merkel. She had thrown her weight behind the bid by the Canadian-Austrian car-parts maker Magna and its Russian partner, Sberbank, to buy Opel and Vauxhall from the beginning, seeing it as the best way to save German jobs and offering both sides billions of dollars in loan guarantees to grease the wheels. Before GM made its sudden U-turn on Nov. 3, Merkel had also been riding high. She was coming off an electoral victory in September and had just given a rousing speech before a joint session of Congress in Washington. The timing of the bombshell from GM had to sting. Then on Thursday came another blow: the carmaker's announcement that it would cut 10,000 jobs across Europe.

The new German Economy Minister, Rainer Brüderle, summed up the mood as he arrived at a cabinet meeting in Berlin on Wednesday: "The behavior of General Motors toward Germany is totally unacceptable. We won't let GM put us under any pressure." But at this point, can the German government or unions really do anything about it? Can they punish GM or at least make things difficult for the manufacturer? Will they be able to protect the 25,000 Germans employed by the company?

At least one thing is clear: the German government wants GM to pay back the $2.2 billion bridge loan that Berlin gave it a few months ago to keep Opel's business afloat. Jürgen Reinholz, the Economy Minister of the eastern state of Thuringia, says GM will likely do this by the end of November. But a huge question for Merkel is whether GM will now receive any of the $6.7 billion in loans the government had previously promised to Magna to seal the deal. The pledge had raised alarm bells in Britain, Belgium and Spain, where leaders feared that Germany was trying to curry favor with Magna and that their countries would bear the brunt of any job losses. When the European Commission said last month that it would launch an inquiry into whether Germany had been in breach of E.U. competition rules, Berlin told Brussels that such state aid would be available to any investor — not just Magna. Theoretically, this means that GM can apply for some of the money to save its European businesses, although German politicians probably won't take too kindly to that.

Opel workers ratcheted up the pressure on GM by going on strike on Thursday. "It's a black day for Opel," says Klaus Franz, leader of the company's works council. "The strikes will start in Germany, and then they'll spread across Europe on Friday." Thousands of workers gathered at the carmaker's plant in Rüsselsheim to vent their anger at the aborted sale. Roland Koch, governor of the state of Hesse, told the workers that GM couldn't be trusted and that he would fight to save every German job. The strike coincided with GM's announcement that it would shed 10,000 positions at its European plants, roughly the same number of jobs that Magna had planned to cut. GM did not say where the cuts would fall. The company employs 7,000 people in Spain, 5,500 in Britain, 3,900 in Sweden, 3,600 in Poland and 2,600 in Belgium.

Franz said two Opel factories in Germany and one in Belgium are now threatened with closure under GM's new restructuring plan. In the negotiations with Magna, the unions had won promises from the company that all four Opel factories in Germany would remain open, despite the fact that it planned to cut about 4,500 jobs in the country. The powerful IG Metall union, which represents about 3 million autoworkers and electrical and engineering employees, says it won't back down from that demand. But now that the Magna deal is dead, the unions don't have much leverage. They are worried that Germany could suffer more job losses than other European countries because the carmaker won't be obliged to protect German workers.

The German government has asked GM to come up with a restructuring plan as quickly as possible. Government sources said only then would Berlin decide whether GM would be eligible for any of the $6.7 billion in state aid that Germany had offered to Magna. Union leaders want the government to stand firm and not send any German taxpayer money across the Atlantic. But the car giant is prepared to play hardball too, reminding German workers that the insolvency of its entire European operation is still an option. "Failure to reach the restructuring that is needed would result in the operation becoming insolvent — that would be an unnecessary and undesirable outcome for everyone," says Karin Kirchner, a spokeswoman for GM in Zurich.

Merkel does have one option left: to take her complaints about GM straight to the top. Government sources said on Thursday that she had spoken to President Barack Obama about the situation on Wednesday night. Obama reassured Merkel that he had not been involved in GM's decision to back out of the sale.

Although Merkel is angry now, the timing of the news could have been worse — GM could have changed its mind before the Sept. 27 parliamentary polls. Such a move could have cost Merkel's party the election, which means she could have missed that trip to Washington to address Congress.

• Tristana Moore / Berlin
• Germany was hit with a one-two punch this week -- first, GM pulled out of a deal to sell Opel and Vauxhall, then it announced 10,000 job cuts in Europe