GIANT cranes stand idle in the shipyard in the bay of the Spanish city of Vigo due to a loss of orders blamed on the threat that the European Union may force shipbuilders to pay back billions of euros in disputed state subsidies.

"There is no boat coming out of the shipyard, it is completely paralysed," said Manuel Simon, spokesman for the metalworking section of the Vigo branch of the CIG union.

The Metalships shipyard is working at half of its capacity, thanks to an order from a US client to build a ship for an oil rig - making it a lucky "exception" according to the company's boss Alberto Iglesias.

"Four or five years ago, if we wanted to sign five contracts at the same time, we could," he added.

Spanish shipbuilders are struggling since the European Union in 2011 ordered the end of state subsidies for the sector, he said.

The threat that Brussels may demand that the bulk of the three billion euros ($4.0 billion) which the sector received in aid between 2005 and 2011 be paid back is adding to the sector's woes and

frightening off business.

The sector has lost contracts for 50 ships due to concerns over the commission's enquiries into the state aid, according to the PYMAR association which represents Spain's shipbuilders.

Six Spanish shipyards have already closed in recent years, leaving just 19 standing which employ 87,000 people directly or indirectly.

Brussels will rule by July 17 if the state aid needs to be repaid.

The decision is anxiously awaited in Vigo, where the shipyard is a major employer along with a Citroen plant and Pescanova, a major Spanish fish company which in April filed for insolvency.

Ilie city of around 300,000 people on Spain's northwestern coast of Galicia already has an unemployment rate of 27 percent.

"Three years ago 12,000 people worked in the shipyards, today barely 900," said Ramon Sarniento, the head of the naval sector of the CCOO union who works at the Barreras shipyard in Vigo, just like his father and grandfather did.

The Barreras shipyard has not signed a new contract in two years. During boom times it worked on up to six ships at the same time.

The company had up to 2,500 employees at one time. Now it has only 80 who work for a few hours each day.

The situation is just as bleak at the neighbouring Armon shipyard. "We have not had a contract, or almost nothing, in three years," said Carlos Lopez, 56, who has worked at the shipyard for nearly four decades.

Hundreds of shipyard workers, most in their blue overalls and holding their helmets in their hands, marched Thursday from the shipyard in Vigo to the centre of the city in defence of the sector. "Listen Europe the naval sector is struggling," they chanted.

“We can start building boats again, that is the only thing that we know how to do and we do it well,” said Sarnieto.

Unions have called for a day of protest and strikes on July 11 when European Union's commissioner for competition, Joaquin Almunia, will meet with representatives of Spanish shipbuilders in Brussels.

Almunia, himself a Spaniard, has argued that those who should be made to pay are the investors who funded projects which also received state aid and the shipping companies that bought the resulting vessels.

But shipbuilders fear they in turn will face legal action from those penalised to compensate them.