Friday, July 23, 2004

One to watch

A potentially explosive situation is developing as the German federal government yesterday officially rejected an ultimatum from the EU commission to amend legislation protecting Volkswagen from hostile take-overs. See previous Blog.

The commission had set a deadline for last Tuesday, to make the legislation compatible with EU law covering the free movement of capital, failing which it had warned that the issue would be referred to the ECJ.

In fact, there was very little the federal government could do. The Länder are totally opposed to this law, which would undermine their financial autonomy and thus their political independence. And, under the Basic Law (Article 50), they have a say in adopting EU law.

Had the federal government sought to introduce the law, the Länder almost certainly would have blocked it in the Bundesrat (upper house). Effectively, the government is between a rock and a hard place.

Furthermore, the timing of what could be a highly damaging dispute is less than helpful to the commission – and Schröder – both of whom want a quick ratification of the EU constitution, the latter being determined to take through the parliamentary route rather than submit it to a popular plebiscite.

Yet, according to the Frankfurter Allgemeine Zeitung, more than 75 percent of the German population, led by Edmund Stoiber, the premier of Bavaria and leader of the Christian Social Union (CSU), want a referendum.

Schröder has stressed that the German constitution makes no provision for referendums. And a change in the constitution requires a two-thirds majority in both houses of parliament, which according to analysts, is unlikely to be achieved.

But a deputy chairman of Schröder’s own party has been quoted in Die Welt, saying the party would "put the question of a referendum and a petition for a referendum on the agenda in the autumn and then we'll see if it could lead to a change in the constitution."

Some German politicians already fear a referendum could be used by voters to send a message of discontent about the current ruling government, as they did in the Euro-elections, and the "Volkswagen Law" dispute could surface in the ECJ at the same time the German people are being asked to approve the constitution.

Although the British media have failed to grasp the importance of this issue, it could well escalate to a point where it puts the whole of the EU under intolerable strain. This is definitely one to watch.