Germany’s VW Law brought to ECJ again

Implications: EU Internal Market Commissioner Charlie McCreevy announced that he wants to take Germany to the European Court of Justice (ECJ) since in his view, Germany has failed to amend the so-called “VW Law” properly and in line with European legislation. The ECJ held last year that the VW law was in breach of European rules on the free flow of capital across borders within the EU. The German car maker Porsche, which is Volkswagen’s major shareholder, currently owning 30 %, has already won permission from the European Commission (EC) to acquire control of VW and is about to do this step by step within the next few months. The German state of Lower Saxony, VW's second-largest shareholder with just slightly over 20 % of the ordinary shares, wants to keep its stake and the blocking minority provided by the VW Law.

Analysis: Yesterday, September 9, 2008, EU Internal Market Commissioner Charlie McCreevy announced that he wants to take Germany to the European Court of Justice (ECJ) since in his view, Germany has failed to amend the so-called “VW Law” properly and in line with European legislation. The VW Law, originally dating from 1960, shields Volkswagen from takeover. The ECJ held last year that the VW law was in breach of European rules on the free flow of capital across borders within the EU. Political Parties in Germany disagree about the future of the VW Law. Especially within the Christian Democrats (CDU) and the Liberal Party (FDP) the national party line diverges from the interests of the persons acting in Lower Saxony, which are also members of the VW supervisory board. While particularly the Liberal Democrats stand for a more liberal approach in economy, which means a pullback of the state from private companies, the Prime Minister of Lower Saxony Christian Wulff (CDU) and his minister of Economics Walter Hirche are in favour of the VW Law, as it protects the jobs of their voters at VW in Lower Saxony. The policy of the German Federal Government remains unclear with regard to the VW Law. It seems that the government plays out. Even now after the announcement of Market Commissioner Charlie McCreevy the government appeases the public that – so far – no claim was handed in at the ECJ. The German government had added a special note to the governmental draft of the revised VW Law, allowing the deletion of the blocking minority rule in the case of a challenge by the EC, which is now expected. Thereby the government is able to act last minute in the case of a final warning. On the other hand, the Federal State of Lower Saxony has already made share purchases to secure the blocking minority, since this blocking minority was at risk due to the issuing of employee shares. Therefore Lower Saxony might also buy up another 5 % of VW shares to reach 25 %, which is the ordinary blocking minority allowed for German stock companies. Lower Saxony might get that money from the sale of shares held in other private companies. Volkswagen has not commented on the EC decision since it sees itself as an object rather than as a player in this issue. Porsche welcomed the decision and said that it is to be expected that the EC will file another lawsuit against Germany in this case. The upcoming election campaign for 2009 hovers above all and might give political developments in Germany another drive.