Germany's VW stance breaks rules: EU's top legal adviser

(LUXEMBOURG) - A German law which helps Volkswagen to resist takeover bids contravenes European rules, a top EU legal adviser declared on Tuesday.

Advocate General Damaso Ruiz-Jarabo said in an opinion that "the German legislation strengthens the position of the Federal Government and the Land of Lower Saxony, preventing any intervention in the management of the firm."

The European Commission, the EU's executive arm, took Germany to the European Court of Justice in March 2005, arguing that the "Volkswagen Law" broke EU rules on the free movement of capital.

The Commission criticised, among other rules, the right of the federal government, which has sold all its VW holding, and the region of Lower Saxony, as long as it remains a shareholder, each to appoint two members to the board of Europe's biggest automaker.

Among its other targets is a rule preventing any shareholder from enjoying more than 20 percent of the carmaker's voting rights, no matter how big the shareholding.

In his opinion, which is not binding but is followed in eight out of 10 court decisions, Ruiz-Jarabo said that when a country, through its public sector, influences a company it should respect ownership rules as enshrined in EU laws.

In the Volkswagen case he found that this requirement was not respected.

"The provisions of the German law tend to keep property in the hands of those who own it in the face of a hostile take-over bid," he said.

European Commission spokesman for internal market matters Oliver Drewes welcomed the opinion and voiced confidence the court would share the EU's executive's view that golden shares "have no place" in the EU.

"The commission believes that golden shares have no place in the internal market and if you look at the recent case law of the court of justice you see that it seems that the court is sharing this line," he said in Brussels.

"It is refining and restricting the use of golden shares at each and every occasion," he added.