EU renews challenge to Germany over 'VW law'

6th June 2008, Comments 0 comments

Volkswagen's main shareholder, Porsche, which is seeking to limit the influence of the state of Lower Saxony over the company, welcomed the move.

Brussels -- The European Union is to challenge Germany once again over its revised version of the so-called Volkswagen law, saying that it breaks EU competition rules, officials said Thursday.

Volkswagen's main shareholder, Porsche, which is seeking to limit the influence of the state of Lower Saxony over the company, welcomed the move, but the state's premier, who would lose a power of veto over Volkswagen if the EU succeeds, voiced his dismay.

Premier Christian Wulff, who is a Volkswagen board member, said the EU move was "regrettable" and "obviously shows they are not willing to accept the good arguments of the German government."

Whereas German company law normally vests veto powers in 25 per cent or more of shareholders, Lower Saxony holds those powers with just 20.8 per cent of Volkswagen equity under the Volkswagen Law.

"We do not believe that the German government is applying the (European) Court ruling (of October 23) in full ... At this stage there is no other way than to start the procedure for non-compliance with a court ruling," a spokesman for the EU's executive, the European Commission, said in Brussels.

"We give the federal government of Germany two months to respond. If not, it's up to the European Court of Justice (ECJ) to see who's right, who's wrong, and it's up to the ECJ to decide eventually what fines have to be determined," he said.

In Berlin, government officials who asked not to be quoted by name, said such open-ended fines might amount to 100,000 euros (154,000 dollars) per day, but they predicted Germany's rewording of the law would satisfy the ECJ.

The European Commission maintains that Lower Saxony has an unfair advantage compared with commercial stakeholders.

"Special rights granted to the German authorities are just not compatible and acceptable under basic (EU) treaty provisions like the free movement of capital," the commission spokesman said. "That is not good for investors from other member states."

The commission's stance is backed by Porsche, which currently owns 31 percent of the company and is seeking to boost its stake to over 50 per cent.

The ECJ on October 23 judged that the original version of the 48- year-old law broke EU rules, impelling the German government to announce a redraft on May 27 that meets some ECJ demands.

Volkswagen's unusual governance means that decisions about lay- offs at the automaker, which also owns the Audi, Seat and Skoda brands, are often politically influenced, especially when labor groups and politicians ally against value-driven investors like Porsche.

Wulff, a Christian Democrat who has used his considerable influence with Chancellor Angela Merkel to retain the law, said Germany would use the two months to prove that its draft legislation met ECJ criteria.

He said Berlin had eliminated a rule capping any larger shareholder's voting rights at 20 per cent of equity, and it had been the combination of this with the veto that had upset ECJ judges.

But Sigmar Gabriel, a former premier of Lower Saxony who is now German environment minister, said Thursday a solution might be for Lower Saxony to obtain proxy voting powers or buy more shares so that its stake increases above 25 per cent.

The Volkswagen Group works council, representing blue- and white- collar workers, attacked Brussels.

"As the group directly affected, we demand that the European Commission give us a hearing," council chairman Bernd Osterloh said in Wolfsburg, where Volkswagen has its head office. He said the state's veto was "an important protective factor for labor."

Germany's BDI federation of industry applauded the EU move, calling on Berlin once and for all to repeal the Volkswagen Law, which was "a dead weight in international competition."


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