While A European Meltdown Threatens, Brussels Sues Germany Over 5 Percent Of VW

by Bertel Schmitt

Published: November 24th, 2011

while a european meltdown threatens brussels sues germany over 5 percent of vw

Suzuki’s suit against Volkswagen had precision timing. Or was very lucky. Volkswagen is heavily distracted by another suit, namely the EU Commission against the Federal Republic of Germany. Casus belli: The VW law. As indicated last week, Brussels is dragging Germany in front of the European Court of Justice. Brussels demands that the “special treatment” for Volkswagen is to be dropped. If the suit is successful, and if Germany remains obstinate, then a penalty of at least €46.6 million ($62.2 million) is demanded. A bargain, considering the hundreds of billions which are being moved around to avoid a meltdown of Europe. The fine would have to be paid by the German government, not by Volkswagen, writes Automobilwoche [sub]

Volkswagen’s home state of Lower Saxony is holder of 20 percent of Volkswagen shares. The state has a veto right, courtesy of the VW law. That veto right protects Volkswagen from unwanted takeovers. Usually, such a veto right needs 25 percent, and Brussels insists on putting Volkswagen and Germany in compliance. The suit triggered an onslaught of angry invectives from Germany. Said David McAllister, prime minister of Lower Saxony:

“At a time when the European Commission should be courting people for greater acceptance, it kicks off a completely unnecessary contract-violation procedure. The timing of this is grotesque.”

McAllister, member of the Volkswagen supervisory board and also a member of the ruling centrist CDU party, finds himself in unusual solidarity with the left-leaning unions. Hartmut Meine, boss of the IG-Metall union in Lower Saxony, rants:

„EU Internal Market Commissioner Michel Barnier is a neo-liberal arsonist. He is trying to eliminate the successful model of enhanced co-determination at Volkswagen for pure ideological reasons. He wants to distract from the true problems in the EU.”

The timing indeed is peculiar. Currently, all attention should be on avoiding a crash of the European financial markets that would make Lehman look like a minor mishap. This needs the full attention and cooperation of all European governments and the EU commission. Picking a quarrel at exactly this point in time is more than grotesque.

#BertelSchmitt #Germany #Volkswagen #VolkswagenLaw #VWLaw

Bertel Schmitt

Bertel Schmitt comes back to journalism after taking a 35 year break in advertising and marketing. He ran and owned advertising agencies in Duesseldorf, Germany, and New York City. Volkswagen A.G. was Bertel's most important corporate account. Schmitt's advertising and marketing career touched many corners of the industry with a special focus on automotive products and services. Since 2004, he lives in Japan and China with his wife <a href="http://www.tomokoandbertel.com"> Tomoko </a>. Bertel Schmitt is a founding board member of the <a href="http://www.offshoresuperseries.com"> Offshore Super Series </a>, an American offshore powerboat racing organization. He is co-owner of the racing team Typhoon.

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Daveainchina on Nov 24, 2011

This is just one department doing something that seems in conflict with another department. These government type agencies are big enough to do both at once. I don't see the problem other than bad publicity. We do it in the USA too. /shrug

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Th009 on Nov 24, 2011

This is mainly an issue for the State of Lower Saxony, right? Does VW (read: Herr Piech et al) really care whether this law exists or not?

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- Fusion on Nov 24, 2011
  
  VW cares because the workers care. The state "ownership" and the veto-right quite effectively protected VW from hostile takeovers, and the assured seats to lower saxony (in the old VW law!) basically gave the employee-site the majority in the supervisory council. The workers care -> the unions care -> in a company like VW, that means the management cares. Quite a lot, at least verbally. Imho the VW-law by now should be of very little real interest to anybody, since the hostile takeover-chances are really low now anyway, with 90% of the voting rights distributed between the main shareholders - Porsche SE, Lower Saxony and Qatar. Also, I don't think the chances of the EU-comission are that great this time. The last verdict basically stated that the right of Lower Saxony to always send two members to the supervisory board, regardless of its share in VW, is illegal. It has since been removed from the VW law and added to the VW statutes (which the EU has no control over). The verdict also stated that the combination of capping the influence of a shareholder at 20% and giving a veto-right with 20% was illegal. It explicitly said that each rule by itself might not be against EU-regulations, but the combination is. "56 It must therefore be held that the combination of Paragraphs 2(1) and 4(3) of the VW Law constitutes a restriction on the movement of capital within the meaning of Article 56(1) EC." Since then, the 20% cap on voting rights has been removed. By now the VW law basically only contains a 20% veto right instead of the usual 25% veto right, and a 2/3 vote when deciding about plant relocations/building/closings. (The last part has never been questioned, and also since then put into the statutes). While VW really doesn't need to care about the result (as stated, this is a court case against Germany, which would have to pay), I am not so sure that the court will decide against the Law as it did in 07...
  
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