The Commission will take Germany to the European Court of Justice over the so-called 'Volkswagen (VW) law'. This law dates from 1960, when the company was privatised. It protects the biggest European car manufacturer from hostile takeovers by preventing any shareholder from acquiring more than 20 per cent of voting rights. Moreover, both the federal and the regional government have the right to sit on the company's supervisory board, regardless of the number of shares they hold.
The Commission holds that the VW law is contrary to the EC Treaty rules on the free movement of capital and the right of establishment, as it makes it substantially less attractive for foreign investors to acquire VW shares. Commissioner Frits Bolkestein has repeatedly asked Germany to scrap the law, but Chancellor Schröder, who sat on the VW board for eight years, has vigorously defended it (see also EurActiv 20 March 2003 ).
According to the German newspaper Der Spiegel, four current Commissioners have criticised the Commission's initiative, including the two German Commissioners Günter Verheugen and Michaele Schreyer, as well as the French Commissioners Jacques Barrot and Pascal Lamy.
Christian Wulff, the prime minister of Lower Saxony, one of VW's main shareholders, has said that "both the federal and the regional governments are optimistic that the ECJ will find that the VW law is compatible with the EC Treaty".
In previous cases against France, Belgium and Portugal, the ECJ ruled that legislation liable to deter foreign investment may constitute a restriction on the free movement of capital. If the ECJ rules against the VW law, Volkswagen could potentially be the target for a takeover bid.
