The German government has reportedly insisted that a law protecting Volkswagen from hostile takeovers did not breach European Union rules, raising the likelihood the European Commission will take court action.

Reuters noted the commission, the EU’s executive branch, told Germany this year it must scrap the politically sensitive law, arguing that it breaches EU treaty rules on the free movement of capital and investment.

But German Chancellor Gerhard Schroeder’s ruling coalition of Social Democrats and Greens has defended the 1960 legislation, saying it is necessary to protect jobs at VW, Europe’s biggest automaker, the report added.

“The German government believes there remains no doubt about the conformity of the VW-law with European law,” Justice Minister Brigitte Zypries reportedly said in a statement.

A deadline for the government to provide Brussels with a written defence of the law expires on Tuesday.

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According to Reuters, a European Commission official confirmed the German government’s response had been received and said the commission would examine it carefully.

There was no date for a decision on whether the commission will take legal action, the official reportedly added. The VW law caps shareholders’ voting rights at 20% regardless of the number of shares owned and also confers a de facto blocking minority to the German state of Lower Saxony which has about 2% of VW’s shares.