A mixed message on golden shares

Special voting rights in private companies ­cont­inue to hold a special ­fascination for some member states. The ­further the EU inches ­towards ­integration, the more tempting their ­appeal to ­member states wanting to resist regulators’ efforts to ­dismantle obstacles to the single market.

Golden shares allow governments the option of keeping a grip on national champions while maintaining the appearance of a modern market ­economy. The protection of prized assets emblematic of national greatness does not preclude the ­possibility of merging with foreign companies - as long as the other party is not doing the bidding.

The European Commission regards golden shares and other special voting rights as a restriction on the free movement of ­capital and has been fighting a ­battle against governments that insist on ­keeping these rights over big companies. The signs are that it is winning, ­particularly after last week’s ­unequivocal vote of ­confidence in the European Court of ­Justice (ECJ).

In the latest blow to the protectionist ­ambitions of national ­governments, the ECJ ruled that the Dutch government must let go of its special voting rights in postal company TNT and telecoms group KPN, both created after the 1998 ­privatisation of state-owned mother company PTT. The ­Commission took legal ­action against the Dutch government three years ago ­after a bid by Spanish champion Telefónica for KPN was blocked.

Following last week’s ­ruling, the Commission warned protectionist govern­ments, including not just the Netherlands, but also France, Italy and Germany, that they were now on a hiding to ­nothing.

The Commission is right to take a tough stance on golden shares if the single market is to have any meaning. Cross-border consolidation is desirable if Europe is to produce ‘champions’ ­capable of thriving in a global market. Other shareholders and consumers stand to benefit from ­increased transparency and more ­competitive products and services.

But governments have found ways of getting around EU disapproval of golden shares. In February, when the ­Commission warned Spain not to use its golden share to stymie German energy group E.ON’s €29.1 billion bid for ­Spanish utility Endesa, Prime Minister José Luis Rodríguez ­Zapatero awarded the ­national ­regu­lator ­arbitrary blocking powers. Last week, Internal Market Commissioner Charlie ­McCreevy issued a second formal warning to Madrid over the affair.

The French government plans to retain a golden share in Gaz de France ­after its merger with Suez and justified its plan using an ECJ decision of 2002 ­allowing Belgium’s golden share in Distrigaz (a part of the Suez group).

But the Commission’s decision last month to ­approve the proposal was puzzling. EU case law does permit golden shares in very strict circumstances relating to national ­security or public policy, but it would be difficult in this case to attribute France’s motives to anything other than naked self-interest. The golden share in Gaz de France ­followed some hasty matchmaking with Suez undertaken by the French government in a panicked bid to ward off the unwelcome advances of Italian suitor Enel.

The 2002 ECJ ruling ­offered opportunities that were cannily exploited by France, arguably the biggest protectionist on the EU block. Most ­justifications for golden shares cite poten­ti­ally hair-raising scenarios where national security or public policy were under dire threat. The Com­mission’s failure to take action in the case of Gaz de France may have been because of a fear that it would lose a legal challenge launched by Paris.

The complexity of the case may also have played a part. As leftish opposition mounted to any further privatisation of Gaz de France, a ­necessary prerequisite for a merger with Suez, the ­golden share may have struck the ­Commission as a useful sop to the unions.

Whichever is the case, the Commission’s campaign against golden shares came unstuck. The waving through of the measure at a time of rising protectionist sentiment in France sits oddly with McCreevy’s outright rejection of golden shares pretty much everywhere else. The Commission is winning its battle against the protectionists, but the French case highlighted a nagging inconsistency in its approach.

Special voting rights in private companies ­cont­inue to hold a special ­fascination for some member states. The ­further the EU inches ­towards ­integration, the more tempting their ­appeal to ­member states wanting to resist regulators’ efforts to ­dismantle obstacles to the single market.