January 14, 2008
Berlin Moves to Block Soveriegn Wealth Funds
To counter the potential of foreign companies influencing the German state today's WSJ reports that Berlin is moving to pass a law which would allow the German state to intervene when foreign-state investors seek to take control of a German company.
Chancellor Angela Merkel wants a law that Germany could invoke in cases where it believes foreign-state investors are trying to buy German companies for what it considers mischievous reasons, such as to gain political influence. German law now allows the government to veto foreign investors only in the defense and cryptography sectors. Berlin wants to expand takeover defenses to cover any foreign investment that could threaten "public order or security," criteria that German officials contend are strict but critics call nebulous.
Ms. Merkel says she is aiming only at exceptional cases. Critics worry she is drafting a law so broad that it could block any investment by foreign sovereign-wealth funds or state-owned companies. The draft law doesn't limit intervention to only specific sectors. It also covers EU-based companies in which foreign governments control significant stakes. A spokesman for Ms. Merkel said only that the proposal is a work in progress.
The size of sovereign-wealth funds is one reason for Western angst. Private-sector economists estimate these funds control about $2.5 trillion of assets globally and are growing fast. German politicians worry that foreign states could effectively renationalize sectors Germany has privatized, such as energy utilities.
As mentioned in a previous post the rise of political actors in capital markets is a growing phenomenon both domestically and internationally. Will other EU nations follow Germany on this?
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