WOLFSBURG, Germany (Reuters) - German insurer Allianz ALVG.DE plans to sue Volkswagen VOWG_p.DE over the sharp drop in its shares as a result of the carmaker's diesel emissions scandal, a source familiar with the situation told Reuters.

If successful, the lawsuit would add to financial pressures on Volkswagen that its chief executive said on Tuesday would be “substantial and painful”.

At the same time, the company’s labour leader warned that the extent of possible job cuts at VW would depend “decisively” on the level of U.S. fines for its cheating of emissions tests.

“Should the future viability of Volkswagen be endangered by an unprecedented financial penalty, this will have dramatic social consequences,” works council chairman Bernd Osterloh told more than 20,000 workers at company headquarters in Wolfsburg.

The ‘Dieselgate’ scandal has forced out the previous chief executive, tarnished one of Germany’s most renowned corporate brands and driven down VW’s share price by 31 percent since it emerged last September.

According to Thomson Reuters data, Allianz Global Investors holds 0.06 percent of VW preference shares and just 10,000 ordinary shares, so will have lost some 8.6 million euros ($9.5 million) on its stake.

The source said the Allianz lawsuit would happen “within this month.” Allianz said in a statement it had not yet filed an actoin against VW but was weighing a suit.

The action will add to VW’s litigation risks in Germany, where the carmaker already faces dozens of private lawsuits.

But it is dwarfed by the potential costs in the United States, where the Justice Department has sued VW for up to $46 billion for breaching U.S. environmental laws.

More than 500 lawsuits have been filed against the company in the United States, and there is still no fix for nearly 600,000 cars affected there.

RISK TO JOBS

Osterloh, who also sits on VW’s 20-member supervisory board, called on the U.S. authorities to consider the risk of possible job cuts in deciding on penalties. “We very much hope that the U.S. authorities also have an eye for this social and employment-political dimension,” he said.

Europe’s largest automaker employs over 600,000 people at around 120 factories worldwide, including 270,000 in Germany. Its U.S. plant in Chattanooga, Tennessee employs about 2,200 people.

Speaking at the Wolfsburg meeting, Chief Executive Matthias Mueller said the scandal would inflict “substantial and painful” financial damage on the carmaker, without elaborating.

Volkswagen last year set aside 6.7 billion euros ($7.39 billion) to cover the expected costs of recalling about 11 million diesel vehicles globally. It has postponed the release of its 2015 results by more than a month until April 28 to better assess the financial implications of the crisis.

Outside the United States, France has opened a formal investigation into suspected “aggravated fraud” by VW, the Paris prosecutor’s office said on Tuesday.

“The software manipulations and its consequences will keep us busy for a long time,” Mueller said, adding that it would take years to determine the full extent of the financial impact.

The logo of German carmaker Volkswagen is seen on a Volkswagen Golf GTI car at a showroom of Swiss car importer AMAG in Duebendorf, Switzerland February 12, 2016. Reuters/Arnd Wiegmann

The state of Lower Saxony, VW’s second-largest shareholder, expects more “unpleasant news” to emerge over the months ahead but remains confident that the company has the financial strength to cope.

“We will this year probably every now and then be confronted with unpleasant news related to ‘Dieselgate’,” Stephan Weil, prime minister of Lower Saxony, told the Wolfsburg meeting.

“The damage will, on balance, not be minor, that much can already be said today, but Volkswagen luckily has a strong economic base,” Weil, also a member of the supervisory board, said.

The Western German state, which holds 20 percent of VW’s common shares, has “no reason” to alter its commitment to the carmaker despite the crisis, said Weil, a member of Chancellor Angela Merkel’s Social Democrat (SPD) coalition partners.

Separately, German prosecutors said on Tuesday they have widened their investigation into the emissions scandal and are now targeting 11 more employees.

Klaus Ziehe from the state prosecutor’s office in Braunschweig, Lower Saxony, which is leading the German case against VW, said 17 people were now being investigated, up from six previously.

“The number of suspects has risen, although none are from the management board,” Ziehe said.