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Brussels, 28 June 2006

Free movement of capital: Commission calls on Hungary to modify privatisation framework law

The European Commission has decided to ask Hungary formally to modify its privatisation framework law (Act XXXIX of 1995 on the Sale of State-Owned Entrepreneurial Assets), which it considers to be incompatible with E law. The Commission considers that the law contains unjustified restrictions on the free movement of capital and right of establishment by conferring special rights for the state in 31 privatised companies in the form of voting priority ("golden") shares. The Commission’s request is in the form of a reasoned opinion, the second stage of the infringement procedures laid down in Article 226 of the EC Treaty. In the absence of a satisfactory reply from Hungary within two months of receiving the reasoned opinion, the Commission may decide to refer the matter to the European Court of Justice.

During its EU accession negotiations, Hungary agreed to amend the privatisation law by the date of its accession, in order to bring it into line with EU law. A bill to that effect had been presented to and was discussed by the Hungarian national parliament in spring 2004. However, since then the process appears to have stalled.

According to the law, the state can, through a voting priority (golden) share, veto certain strategic management decisions at the general assembly of the privatised company concerned. These decisions could relate to, for instance, changing the company's equity capital, mergers and acquisitions, or winding-up. Such special state rights have been provided from the outset for companies in major sectors of industry. The law continues to be applied after accession, with new special rights having been introduced even in 2005.

Since these special rights are liable to dissuade companies from other Member States from investing in the companies concerned, they constitute an infringement on the EU freedoms of capital movement and right of establishment. Furthermore, they affect sectors of substantial economic importance. The companies concerned are located in several branches of industry, such as: food industry (salami and paprika); pharmaceuticals; general manufacturing (porcelain); financial services (a bank); telecommunications; energy; and defence. Together the companies concerned comprise the major part of the market capitalisation of the Hungarian stock exchange.
The latest information on infringement proceedings concerning all Member States is available at:

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