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Last Updated:  Wednesday, 19 March, 2003, 13:41 GMT
EU challenges VW takeover law
VW New Beetle
Germany want to keep VW in German hands
The European Commission will challenge a German law protecting Europe's biggest car maker, Volkswagen, from hostile or foreign takeovers.

The VW law in the German state of Lower Saxony caps shareholders voting rights at 20%, regardless of how large their stake in the company.

"This is only the first phase," said Commission spokesman Reijo Kemppinen.

"We are asking for more information and indicating certain problems," he said.

The EU challenge is likely to provoke a direct fight with German Chancellor Gerhard Schroeder, who promised during his re-election campaign last year to protect the law.

Capital flows

The law also gives Lower Saxony, of which Mr Schroeder was prime minister and which has just under 20% of VW's common stock, the power to appoint members of the supervisory board.

The Commission's internal market commissioner Frits Bolkestein has said the statute violates EU laws by inhibiting the free flow of capital in the 15-nation block.

"We believe the law is correct, and we're sticking to our position," said a spokesman for the government of Lower Saxony.

The state has two months to respond to the Commission's challenge.

The case could end up in the European Court of Justice if the Commission and Lower Saxony fail to resolve the dispute.

VW employs more than 150,000 people in Germany.

Albrecht Denninghof, Hypovereinsbank
"When VW was privatised, Lower Saxony had some special shareholder rights..."

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