Lawyers described today’s ruling against Germany’s “Volkswagen law” – the latest in a string of legal victories by the European Commission in its bid to clear the way for cross-border European mergers and acquisitions – as a “hammer blow against protectionism”.

Michael Grenfell, a competition partner at Norton Rose, said: “The European Court of Justice is making it more and more difficult for companies or Governments to rely on golden shares or other regulatory measures designed to inhibit takeovers.”

Germany is not alone in seeking to guard key industries and individual companies from foreign hands, but the Commission’s fight against the Volkswagen law has become symbolic of its wider fight to open markets and stamp out protectionism.

In June, the Commission followed its case against Germany by giving the Portuguese Government final warning to surrender its special rights in two energy companies, Energias de Portugal and GALP Energia. It has also initiated legal action against the Polish Government’s influence in 15 key companies, and warned Romania that the influence it holds in a large oil and gas supplier is illegal.

Charlie McCreevy, the EU internal markets commissioner, who has been championing the fight against protectionism, welcomed today's ruling as “good news”.

Competition lawyers seemed to agree. Karl Walter, a corporate partner at law firm Faegre & Benson in Frankfurt, said the abolition of the law is “long overdue” and heralds an “important step towards free movement of capital” across the continent.

Matthew Levitt, a competition partner at Lovells, said that protectionist Governments now have “no place to hide”.

At the heart of the Commission’s complaint are specialist share holdings or so-called “golden shares”, which give the owner – often a Government or Government agency – enhanced rights that are not available to other shareholders even though they may have a similar or larger stake.

The Volkswagen law was a combination of three unusual provisions, one of which was a golden share by the German Government and the state of Lower Saxony that gave each the right to appoint two members to the carmaker’s supervisory board. (Other common forms of golden share give the holder increased general voting rights out of proportion with their actual shareholding.)

Golden shares are particularly prevalent in former state-owned businesses in “sensitive” industries that Governments wish to protect, such as energy or defence. (What constitutes a “sensitive” industry is widely disputed between countries and usually decided arbitrarily by the Government of the day.)

The ECJ has made it clear that Governments cannot rely on golden shares or other forms of protectionism to protect national interests. In today’s judgment, it said that although protecting German workers was a legitimate aim, the Volkswagen law was not a justified way of doing so.

This is consistent with previous rulings: last year, the court ruled that the Netherlands was in breach of European law by keeping golden shares in the privatised Dutch postal operator TNT and telecoms company KPN.

To date, the court has been satisfied by only one golden share, which allowed Belgium to influence Dirigaz, a gas company, in order to secure the country’s emergency gas supplies.

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