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Germany to Control Sale of Defense Companies

Germany's parliament on Friday will begin debating a proposal to require government approval for the sale of defense companies to foreigners. Passage is likely.

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MTU engines: Built by Germans, owned by Americans.

Under the proposal, government approval will be required any time a foreigner buys at least 25 percent of a German defense company's shares. Defense experts say it's a step that is long overdue.

Proponents of the bill say this more than just a question of free markets, but rather one of preserving Germany's defense industry, a sector long funded by government.

"So far, the state has no say in this area and, ultimately, it's also a question of securing assets created with the help of subsidies over decades," said Joachim Rohde, a researcher at the German Institute for International and Security Affairs.

U-Boot U 31 auf Testfahrt

HDW submarine

Some of those assets have already changed hands, including Kiel shipbuilder Howaldtswerke Deutsche-Werft (HDW). The world's leading producer of submarines was bought by the American investment group One Equity Partners in 2002. Last month, engine manufacturer MTU fell into American hands as well after private-equity investor Kohlberg Kravis Roberts (KKR) bought the company from DaimlerChrysler.

Targeting opportunism

Apart from preventing the sale of those companies still under German control, the government's proposed change in the law also targets opportunistic executives who try to beef up their firms with state contracts in order to increase their chances of selling them on the world market. Hans-Peter Bartels, a security expert for the governing Social Democratic Party, said the MTU sale is a case in point.

"It was disgusting that DaimlerChrysler lobbied for German and European bidders for a contract to build engines and sold the company to American investors as soon as the contract had been awarded," Bartels said.

Not everyone supports the government's plans, however. "We fear that this law will hamper and not advance cooperations and a common European defense policy," said Erich Georg Fritz, a parliamentarian and foreign trade expert for the opposition Christian Democrats.

Britain, France already have safeguards

Elsewhere in Europe, governments already have much more say in sales of defense companies. Britain's foreign secretary can prevent a sale if he views it as a potential threat to national security interests. In France, the state owns shares of large defense companies and can therefore influence company decisions.

After the German Chancellor Gerhard Schröder's cabinet approved the new bill in December, Germany now seems poised to move down that road as well.

On Friday, the proposal will go before Germany's upper legislative, the Bundesrat. But even if the opposition-controlled chamber votes against it, the government will be able to overrule such a decision in the Bundestag, the lower house. Officials in the ministry of economics expect the law change to take effect by summer.

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