European Court of Justice throws out `Volkswagen law'

An EU court ruled yesterday that a German law shielding car maker Volkswagen AG from foreign takeovers was illegal because it violated the EU's single-market principles.

The European Court of Justice overturned rules capping a shareholder's voting rights at 20 percent and requiring a majority of 80 percent for "important decisions."

"The Volkswagen law limits the free movement of capital," the court said in a statement.

The court also rejected the right of both the German federal government and the region of Lower Saxony to appoint two board members each while they were shareholders in the firm.

The court called them "questionable conditions [that] could have a deterrent effect" on bids.

The ruling on the 47-year-old "Volkswagen law" was being watched as an indicator for how far EU governments would be allowed to go in protecting companies they saw as vital to their economies.

Volkswagen emerged from the ashes of World War II to become Europe's biggest automaker, with brands from the more affordable Seat and Skoda to the upscale Audi and the stratospherically priced Lamborghini.

German politicians and labor unions have said the law was needed to protect local jobs.

But the European Commission took Germany to court in 2005.

The commission argued that the German law violated EU rules guaranteeing the right to do business anywhere in the 27-nation bloc, and that "golden shares" allowing governments to protect companies had no place in the shared European market.

The ruling is a triumph for the European Commission.

However, anticipating the ruling would follow an advisory opinion against the Volkswagen law, fellow German automaker Porsche AG increased its holding in Volkswagen to 31 percent, while Lower Saxony raised its stake to 20.36 percent, giving Porsche and Lower Saxony together 51 percent -- or enough clout to stop a takeover.