European Court outlaws France's golden share in Elf

The European Court of Justice yesterday struck a blow for cross-border investment in the European Union, declaring illegal a golden-share arrangement which allowed the French government to control the fate of the oil giant Elf.

The landmark ruling, one of three concerned with the same issue yesterday, was welcomed by the European Commission, which has been pressing EU countries to free investment across EU frontiers.

Analysts believe the court's findings will spur foreign takeovers in a market where cross-border investment is already worth 670bn euros (£431bn) or 8 per cent of EU gross domestic product. The judgment also clears the way for Brussels to bring forward plans for new rules on takeovers.

In its decision yesterday, the Luxembourg-based court described golden shares, which give minority owners more control in certain circumstances, as a barrier to the free movement of capital that could be justified only in cases of national strategic interest, and if the measures were proportionate.

In addition to the judgment against France, the court outlawed a Portuguese decree from the early 1990s that allows the government to take a controlling stakes in privatised companies. But it said Belgium is entitled to retain golden shares in its recently privatised gas company Distrigaz.

In the Belgian case, the measures taken by the government were judged to be in the national interest and proportionate. In France, while the court found there was a strategic national interest at stake, it ruled that the government decree gave disproportionate powers. Elf is now merged with TotalFina, with French government approval, and the French Finance Minister, Francis Mer, said yesterday that the new company, TotalFinaElf, now had "the means to take care of its own future. As a result, the issue is no longer dangerous for us".

The Commission, which had challenged the practice of golden shares, said it felt vindicated by the rulings which, it argued, backed its policy advocated since 1997. It will look at cases individually before deciding whether to take more legal action. Two similar cases are pending before the court, one against Britain's restrictions on the control of BAA, the UK airports operator, and the other against Spanish privatisation legislation.

However, the ruling might not apply to a German law that preserves the state of Lower Saxony's influence over the ownership of Volkswagen by barring anyone from controlling more than 20 per cent. A Commission spokesman saidthiswas not a golden share.