Libertas.org

by Dr. Constantin Gurdgiev exclusively for the Libertas.org

In a clear sign that Germany is drifting dangerously closer to the protectionist position occupied within the EU by France, a recent report in the Frankfurter Allgemeine revealed that the German governing coalition has produced a law to restrict the purchase of German companies by foreign investors.

According to the reports, foreign shareholders will be required to publish all and any holdings that exceed 25% of the market value of German enterprises. More ominously, German economics minister will then be able to block any such shareholdings, or impose conditions restricting foreign ownership.

The draft will be put to the full cabinet vote in December.

The law applies to anybody who is a resident (or potentially even a citizen of) outside the territory of the Federal Republic. The basis for the new law is an existing clause in Germany's foreign economic law, which allows the government to prevent takeover or merger, if public security, or public order are in danger. This basis was devised to restrict foreign ownership of defense contractors. Furthermore, existent German laws already grant the state powers to block any mergers and/or acquisitions of German companies when the foreign partner is a state-owned enterprise.

According to the Frankfurter Allgemeine report, the German government believes that the new law will comply with the existent EU regulations (despite allowing the authorities to ban or restrict shareholdings in German companies by the residents of other EU states) and the WTO rules (despite imposing a unilateral and, so far, open ended restrictions).

The German authorities have stated openly that the law is intended to offer German companies protection from sovereign foreign reserve funds (funds created by the likes of China, Russia and Norway out of large trade surpluses) and investors from the rogue states (presumably Iran, since Cuba, Sudan and North Korea are not in the position to invest abroad for the lack of funds, while the likes of Venezuela are in the EU’s good behaviour books).

The irony of this is of course that the same week as the law was being discussed, German Chancellor, Angela Merkel, was on a state visit to India trying to drum up investment from Indian companies in Germany.

Further difficulties with the proposal arise when one recognizes that German law already allows the state to stop and restrict any foreign investment from rogue states or dodgy investors, and that the European laws have strong powers in dealing with illegal investments. Effectively, this means that the new law, in order to have any substantive powers, will have to be applied beyond the existent legislation. And this will make it a powerful tool for granting underperforming German firms protection from the international investors and competition.

What can possibly go wrong here, Frau Merkel?

Dr. Constantin Gurdgiev is a leading economist and journalist, and is a member of Libertas.