EU raps Germany over Volkswagen law

The German government has not done enough to abide by an EU Court ruling overturning a law that effectively protects Europe’s largest car manufacturer from hostile takeovers, a Commission spokesperson said on 10 April, warning of further legal action.

“We have written to Germany about the ‘Volkswagen law’,” a spokesperson to EU Internal Market Commissioner Charlie McCreevy’s . 

The disputed law was ruled illegal by the European Court of Justice in October 2007, on the grounds that it went against the free movement of capital by restricting the opportunity for investors to participate in the company. 

The law contained a number of provisions intended to guarantee the German federal government and the Land of Lower Saxony a lasting influence over Volkswagen, independently of the shares that they held. Notably, it stipulated that other shareholders cannot hold more than 20% of voting rights in the company even if they hold a higher proportion of its capital. 

In January, the German government presented changes to the law, but failed to do away with a 20% blocking minority on decisions relating to large transactions, which means that resolutions can only be passed if they represent 80% of the shares – 5% more than foreseen under German law. The provision effectively allows Lower Saxony to block all resolutions and exercise full control over Volkswagen, even though it owns little more than a fifth of the company shares. 

“They haven’t fully complied with the court judgment,” according to the Commission, which adds that the letter did not represent the start of a formal infringement procedure. Nevertheless, the Commissioner warns Germany that he reserves the right to take the government back to EU court if it fails to address the issue. 

However, in a letter sent on 10 April, German Justice Minister Brigitte Zypries replied that she could not see how “the blocking minority hinders the free movement of capital”. 

The removal of the 20% blocking minority would come as a boon to Porsche, which has signalled its intention to raise its 31% share of Volkswagen to a majority holding – a move resisted by Lower Saxony. 

In a parallel move, Germany’s ruling coalition has opened the path to measures to block foreign state-controlled investments. The plan would create a German equivalent of the US Committee on Foreign Investments, which would be allowed to scrutinise acquisitions involving a stake of more than 25% of a German company by foreign sovereign wealth funds.

The move comes amid growing fears that these investment funds could be used by countries like China and Russia to obtain political influence in strategic sectors, such as energy and defence. The EU has also announced that it is working on a voluntary code of conduct, which it hopes will be agreed internationally (EURACTIV 14/03/08).

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