The European Commission has told Germany it must scrap a law that protects carmaker Volkswagen AG from hostile takeovers or face court action.
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According to Reuters, the politically-sensitive decision was a further step in the commission’s fight against what it regards as undue government interference over privatised firms.
The news agency said the issue has caused a major spat between German chancellor Gerhard Schroeder and commission president Romano Prodi’s EU executive, prompting repeated delays in the decision.
Reuters said the commission believes a 1960 law privatising VW breaches EU treaty rules on the fundamental freedoms of movement of capital and investment by giving the state of Lower Saxony effective control through a minority stake while the left-wing German government has defended the law as vital to protect jobs at Europe’s largest carmaker.
“The reply by the German authorities has not changed the commission’s view that certain provisions of that law act as a disincentive on investment from other member states, in violation of (EU) treaty rules,” the commission reportedly said.
Reuters said Tuesday’s legal move by the European Union’s executive follows an earlier warning to Germany over the law and will be followed by action in the European Court of Justice if Berlin does not comply with the EU request within two months.
Reuters noted that the VW law caps shareholders’ voting rights at a maximum of 20%, regardless of the number of shares owned, and confers a de facto blocking minority to the German state of Lower Saxony, VW’s biggest shareholder, who retains roughly 20% of the company’s shares.
“Both of these restrictions have been imposed by the state acting in its capacity as a public authority, rather than as the result of the normal operation of a company law,” the commission said in an explanatory statement cited by Reuters.
