Berlin - The European Commission said on Thursday it would take legal action against Germany by the end of the year over a law governing carmaker Volkswagen that it says violates EU rules on the free flow of capital.
The European Union's highest court last year struck down a 48-year old German law that shields Volkswagen from takeover, forcing Berlin to come up with alternative legislation.
On Thursday, Germany's Bundestag lower house of parliament approved a revised law which addresses some of the EU's concerns but not all of them.
For example, the new legislation keeps a rule that gives the state of Lower Saxony, which holds just over 20% of Volkswagen shares, an effective blocking minority in the firm. The EU has said explicitly that Germany must scrap the rule.
"We will move ahead with the case in the next few weeks. The Commission certainly hopes to reach a decision on the next stage before Christmas," a Commission spokesman said.
The law allows Lower Saxony, the region where Volkswagen is based, to block strategic decisions taken by the company's largest shareholder, Stuttgart-based sports carmaker Porsche.
Porsche has lobbied vigorously for the law to be overturned, but encountered robust opposition from the German government and Volkswagen workers.
German Chancellor Angela Merkel said in a speech in September at Volkswagen headquarters in Wolfsburg that she believed the new legislation met EU demands and vowed to defend the blocking minority clause in Brussels.
Thousands of VW workers have demonstrated in support of the law, which is also backed by Lower Saxony premier Christian Wulff, an influential member of Merkel's Christian Democrats (CDU).