'Golden Shares'

Hostility to cross-border capital flows is growing in Europe. The EU may allow governments to use 'golden shares' to prevent foreign state-controlled funds taking control of the continent's strategic  industries.

The Midas Touch?

A golden share is a nominal share which supersedes all other shares in specified circumstances, and is typically held by a government organisation. It gives the holder the means to veto all other shareholders to prevent stakebuilding above a certain percentage ownership level, or to nix the sale of a major asset and/or of the company as a whole. And all this can be done without retaining a majority holding in the company. Golden share provisions are currently illegal in the EU except for security-related armament industries as they interfere with free trade and could be misused to protect national interests.

This may change, though. EU Trade Commissioner Peter Mandelson is not planning to give individual states the wherewithal to blackball foreign investors willy-nilly. He envisages that golden shares will be held at bloc-level, giving Brussels the ability to protect its interests in strategic industries that could be subject to 'improper' foreign political influence. But the very notion of golden shares leaves Europe open to accusations of 'bloc nationalism' and will fuel a worldwide debate over the proper level of government support for industry.

Brussels is walking a tightrope. It wants to ensure that the EU remains attractive to foreign investors, including state-run funds. But it also wants to keep control over key industries to prevent state-controlled entities in China and Russia buying EU defence or energy assets for political rather than economic reasons.

Mandelson is against the suggestion that the EU should create a US-style Committee of Foreign Investment to vet and block deals in sensitive industries. But the golden tactic is likely to deter foreign rivals. It risks creating reciprocal protectionism rather than the reciprocal market openness Brussels claims to seek.  A debate looms over the sharing of legal responsibility in the potential deployment of golden shares and how any list of strategically important companies should be compiled.