IP/08/873

Brussels, 5 June 2008

Free movement of capital: Commission calls on Germany to apply Court ruling on Volkswagen law

The European Commission has decided to open infringement proceedings against Germany following its failure to comply with a Court of Justice ruling of 23 October 2007 regarding the 1960 law privatising Volkswagen (VW law).In that judgement, the Court found that three provisions of the VW law attribute unjustified special rights to German public authorities (the Land of Lower Saxony and potentially also the Federal Government) and that by maintaining them in force, Germany has failed to fulfil its obligations under the EC Treaty rules on the free movement of capital (Article 56). The request for information on Germany’s compliance with the Court ruling takes the form of a ‘letter of formal notice’ under EC Treaty infringement procedures related to compliance with Court of Justice rulings (Article 228). Failure by the German authorities to comply with the 2007 judgement could result in fines being applied by the Court of Justice.

On 23 October 2007, the European Court of Justice ruled (case C-112/05) that "by maintaining in force Paragraph 4(1), as well as Paragraph 2(1) in conjunction with Paragraph 4(3), of the Law of 21 July 1960 on the privatisation of equity in the Volkswagenwerk limited company" Germany has failed to fulfil its obligations under the EC Treaty rules on the free movement of capital (Article 56).

These three provisions of the VW law (which are also reflected in provisions of the Articles of Association of the company) grant the following special rights to German public authorities (the Land of Lower Saxony and potentially also the Federal Government):

• automatic representation of public authorities on the board stipulated in §4 (1) VW-law (Art. 12 AoA in their version as of March 2006);
• a 20% voting cap stipulated in §2 (1) VW-law (24(1) 3rd sentence and Art. 25 AoA) as well as
• a 20% blocking minority stipulated in §4 (3) VW-law (Art. 26(2) AoA).

For its part, the Commission considered (IP/04/400) that the above provisions of the VW-law are incompatible with Community law on the freedom of capital movement and the right of establishment guaranteed by Articles 56 and 43 of the Treaty respectively, as they are liable to dissuade investors in other Member States from the acquisition of shares and capital investments in Volkswagen AG and consequently hinder the exercise of these fundamental Treaty freedoms.

Under Article 228(1), if the Court of Justice finds that a Member State has failed to fulfil an obligation under the Treaty, the State is required to take the necessary measures to comply with the judgment of the Court of Justice. So far, the Commission of the European Communities has received no information that is adequately specific for the purpose of indicating which measures will be taken by the German Government to effectively comply with the judgment of 23 October 2007. The Commission of the European Communities consequently takes the view that Germany has failed to fulfil its obligations under Article 228(1).