Germany acts to halt the 'giant locusts' gopvernment wants to keep control of the country's industrial base and stop "giant locust funds" from Russia, China and the Middle East from launching takeover raids on the country's prized industries.
Germany acts to halt the 'giant locusts'
Angela Merkel's government wants to keep control of the country's industrial base, writes Ambrose Evans-Pritchard
Germany's cabinet is expected to approve a far-reaching new law this week to stop "giant locust funds" from Russia, China and the Middle East from launching takeover raids on the country's prized industries.
The controversial measure will enable Germany to stop foreign investors from outside the European Union buying more than 25pc of any company when "public order and security" are at stake.
The wording creates an elastic definition that goes far beyond the current law, which is restricted to the defence industry.
The proposals have set off a storm of controversy and raised fears that the country is drifting towards protectionism. The German Chamber of Trade and Industry (DIHK) has been highly critical of the draft law, warning that it risks provoking retaliation and is starkly at odds with the country's interests as the world's top exporting nation.
"This will damage Germany's economic standing. The controls should be restricted to questions of national security. In the face of such regulations, any financier is going to think twice about whether he should be investing here at all," said the group's chief, Axel Nitschke.
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Michael Glos, the economy minister, said foreign investors had nothing to fear from the law, which is to be discussed by Chancellor Angela Merkel's Left-Right cabinet tomorrow. "The new rules are very modest and only allow government interference in foreign investment projects in very few cases," he said.
Chancellor Merkel has been wary of moves by Russia's state-controlled banks and companies trying to buy shares in strategic industries. She issued a blunt warning to premier Vladimir Putin (then president) that Berlin would not tolerate moves by VTB Bank to acquire a large stake in the Airbus mother-company EADS. She also stopped Russia's Mishkonzerns Sistema from taking a slice of Deutsche Telekom in 2006.
Her suspicions have been validated by the hard-nosed behaviour of the Kremlin, which has repeatedly used its economic tentacles to pursue its Great Power strategic ambitions.
Russian billionaire Alexander Lebedev said Berlin was well advised to shut the door on secretive wealth funds and state banks, warning that they cannot be trusted if they come from corrupt regimes that refuse to play by established rules. "In Germany's place I wouldn't sell anything to a Russian or a Chinese state fund," he told Welt am Sonntag.
It is unclear whether any solo effort by Germany to stop investors would work under EU single-market laws.
Funds could easily use a stalking horse based in London or Dublin, perhaps working through a private equity group. Ownership would inevitably be blurred. Such a situation would create strong pressure for an EU-wide law restricting foreign investors. Britain would not necessarily have the votes to block such a measure.
Stephen Jen, currency chief at Morgan Stanley, said Britain's open-door policy means that the City would be the chief beneficiary of the German plan. "The funds can use operations listed in London," he said.
Sovereign wealth funds already control $3 trillion in assets worldwide, led by Abu Dhabi's ADIA fund, now worth almost $1 trillion. Mr Jen said the figure was likely to reach a staggering $12 trillion over the next seven years, making it the great transforming force of the global financial system.
However, analysts doubt whether Russia's wealth fund will be a major issue in the long run, since Moscow needs the money for a $1 trillion rebuilding blitz on its own archaic infrastructure of roads and railways.
The Russian fund is already operating like a central bank rather than a strategic investor. The wealth is being held in liquid assets such as government bonds because the managers suspect that Moscow might recall funds at any time. |
