Minister from Porsche state attacks Volkswagen law

"There is no need to make special arrangements for an individual company," Baden-Wuerttemberg Premier Guenther Oettinger told the upper house of parliament in its first debate on the new legislation on Friday.

He said Berlin was risking another lawsuit from Brussels over the 48-year-old law, parts of which were struck down by the European Union's highest court last year because they prevent the free flow of capital.

"Do we really need to offend Europe without having to," he asked.

Oettinger made no specific mention of Porsche, which is in the process of increasing its 35 percent voting stake in Europe's biggest carmaker to an absolute majority.

Porsche wants the VW law scrapped to have a freer hand with the company. It said on Friday it was preparing to go over VW's books to revalue VW's assets once it consolidates the company.

Lower Saxony Premier Christian Wulff and Justice Minister Brigitte Zypries defended the amended legislation, which now moves to committees in both houses of parliament.

The law would give VW's home state of Lower Saxony a blocking minority even though it has only a fifth of the votes. The blocking minority at other German companies is 25 percent.

A government spokesman reiterated Berlin's view that the new VW law would meet all the requirements laid down by the court.

Chancellor Angela Merkel is due to attend a VW works' council meeting on Tuesday at the company's plant in Wolfsburg and the spokesman said the invitation to the meeting was a sign that VW workers supported the government's plans.

"We believe this draft will fulfil all the stipulations made by the European Court," government spokesman Thomas Steg told reporters at a regular news conference.

He said, however, that Merkel was unlikely to be drawn into a public statement on the dispute between VW and Porsche.

Thousands of VW staff protested outside the company's headquarters this month in support of the law, which EU Internal Market Commissioner Charlie McCreevy has criticized.

Wulff, a powerful figure within Chancellor Merkel's Christian Democrats (CDU), has lobbied the government hard to ensure the preservation of his state's special role in the carmaker, which employs close to 150,000 people in Germany.

Shares in Volkswagen fell 10 percent by 1137 GMT, bucking the firmer trend among European car stocks and reversing part of its gains of more than 40 percent this week.

Traders said speculation has cooled that Lower Saxony, perhaps in concert with Volkswagen

Chairman Ferdinand Piech, may have been raising its stake to put pressure on VW's management.

Wulff said earlier the state was not buying more shares.