Germany taken to court over Volkswagen law

The Commission has decided to take Germany to court over
the 1960 law protecting Volkswagen, saying that it
violates EU rules on the free movement of capital.

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.

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