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Thursday, July 11, 2024 | Back issues
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Volkswagen Aid Won’t Cost Germany Any More

(CN) - Germany divested enough of its interest in Volkswagen to satisfy free-market rules, Europe's highest court ruled Tuesday, refusing to impose $82 million in fines.

The ruling ends Germany's frequent tangles with the European Commission over provisions of the Volkswagen law, a 1960 regulation on the privatization of equity in the automaker. The nation first felt the bite of regulators in 2007 when the Luxembourg-based Court of Justice found illegal infringement on the free movement of capital in three provisions of the law.

At that time, the court took issue with a provision granting the German government and the state of Lower Saxony the right to appoint two representatives to the Volkswagen board.

The court also found that a separate provision illegally capped the voting rights of individual shareholders at 20 percent - though it also gave those shareholders a blocking minority within Volkswagen's general assembly.

It found that these provisions limited minority shareholders from participating fully in the running of the company and were likely to deter investors from other European countries from investing in Volkswagen. Germany responded by entirely repealing the first provision and the voting-rights cap, but it left the blocking minority in place.

When the commission complained again in 2012, it said Germany had failed to fully comply with the court's decision and illegally impeded the free movement of capital by keeping the provision that grants 20 percent shareholders a blocking minority.

Regulators also asked the court to levy massive fines on Germany for every day that the country has failed to comply with the 2007 ruling. They suggested Germany pay a $365,000 penalty for each day it takes to amend the Volkswagen law and a $40,000 lump-sum payment multiplied by the number of days between the 2007 ruling and the day Germany finally complies. Such a ruling would cost Volkswagen $82 million today.

An adviser to the high court recommended dismissing the commission's action earlier this year, finding that Germany had sufficiently amended the Volkswagen law. He also chided the justices for leaving "room for argument" in its earlier decision.

On Tuesday, the Court of Justice said that it never specifically addressed the blocking minority issue in its original decision because it had not viewed it as a problem in the first place.

"Whilst it is true that the court upheld the complaints relied on by the commission and alleging infringement of EU market rules, that fact cannot in the absence of an express contrary indication be treated as amounting to a finding by the court that the blocking minority portion of the VW law constitutes, on its own, a restriction on the free movement of capital," the decision states.

The court also rejected the commission's claim that Germany should be held responsible for Volkswagen's failure to amend company bylaws to remove references to the illegal parts of the VW law in a timely manner. Noting that the first decision never addressed whether the automaker's own rules contributed to Germany's free-market violations, the justices said they would not do so now.

By repealing the two offending portions of the VW law - and within the period prescribed by the 2007 ruling - Germany satisfied the court's original intentions, the high court concluded.

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