EC Warns Berlin It Faces Fines Over Vw Veto

The European commission renewed legal proceedings against Germany yesterday for failing to remove a right of veto for the state of Lower Saxony at Europe's largest car maker, Volkswagen.

The commission warned Berlin that it could face fines at the European court of justice for failing to comply with an ECJ ruling last October that a 20% blocking minority vote for Lower Saxony was incompatible with EU treaty rules on free movement of capital.

The fines could be €100,000 (£80,000) a day, putting pressure on the German government to amend a revised "VW law" it adopted in draft form only a few days ago. German company law sets the normal blocking minority at 25%.

The EC's move is a substantial fillip for Porsche, VW's largest shareholder with 31%, which has campaigned fiercely, including in the courts, for the removal of Lower Saxony's veto. The sports car maker plans to launch a full-scale takeover bid for VW later this year.

But ministers and VW union leaders assailed the EC's move as an attack on Germany's social market economy, with its emphasis on job protection, in favor of unfettered capitalism.

Sigmar Gabriel, social democrat environment minister and former Lower Saxony premier, said: "The [1960] VW law tries to prevent big shareholders playing with such firms and selling them off in a Monopoly game to someone or other." Many Germans fear VW could be sold to foreign financial investors despite Porsche's big stake.

A spokesman for Charlie McCreevy, EU internal market commissioner, said it was unacceptable for a public authority to have a preferential say in a private-sector company.