Looming lawsuit

The European Commission said on Thursday that it plans to haul Germany before the EU's top court for failing to scrap a law that shields automaker Volkswagen from hostile takeovers.

The Commission said Germany had failed to abide by a previous October 2007 ruling by the European Court of Justice to repeal the so-called "Volkswagen Law."

It gives the northwestern German state of Lower Saxony the right to block a takeover deal for the carmaker by using its 20-percent minority stake. The state is home to the bulk of Volkswagen's 95,000-strong German workforce and five of six manufacturing plants.

The court argues that the law restricts the free flow of capital in Europe and gives Volkswagen an unfair advantage over its rivals.

"Since Germany has failed to take all the necessary measures to fully comply with the Court's judgment, the Commission has now decided to bring the case before the Court again," the EU's executive arm said in a statement.

The Commission also said it wants the court to impose a penalty of around 31,000 euros ($41,320) per day dating back to October 2007 - when the court overturned the Volkswagen Law - until Germany complies.

Timing 'grotesque'

The Commission's decision has sparked outrage in Lower Saxony.

"We're adamantly convinced that the VW Law conforms to EU legislation," David McAllister, state premier of Lower Saxony said on Thursday.

"At a time when the European Commission should be courting people for greater acceptance, it kicks off a completely unnecessary contract-violation procedure," he said. "The timing of this is grotesque."

The Volkswagen law dates back to 1960 when the company was privatized. It has long served as a deterrent to hostile takeovers by preventing any one shareholder from exercising more than 20 percent of the company's voting rights.

Another clause in the law, which gives Lower Saxony a 20-percent blocking minority, has led to the company being shielded by politicians in its home base from external pressure.

The European Commission maintains that the VW law is incompatible with EU legislation and violates free competition.

"VW is a private company and as such, tailored treatment for one specific shareholder is not appropriate," Chantal Hughes, a spokeswoman for the European Commission said.

"The VW law also allows for potentially inappropriate political interference in business activities. This can deter investors and is not just hypothetical," Hughes said.

Author: Sonia Phalnikar (AFP, dpa, Reuters)
Editor: Spencer Kimball