Germany moves to block sovereign wealth funds

BERLIN, August 22, 2008 (AFP) – Berlin has moved to block takeovers of German firms by petrodollar-rich investment vehicles known as sovereign wealth funds if they are deemed to jeopardise national security. Chancellor Angela Merkel’s cabinet approved a bill that would see acquisitions by foreign entitities not based in the European Union of more than a 25 percent stake in German firms scrutinised, the economics ministry said.

If such a purchase is deemed to pose a threat to public security or order, Berlin could prevent it from going through, according to the bill that must now be passed by parliament to become law, the ministry said in a statement.

Sovereign wealth funds are investment vehicles typically controlled by hydrocarbon-rich countries like Russia or Gulf nations with trillions of dollars at their disposal ready to invest abroad.

Many large banks were forced to go cap-in-hand to sovereign wealth funds when the subprime mortgage crisis left them strapped for cash.

Singapore’s Temasek for example became the largest shareholder in Merrill Lynch.

But concerns that their motives may be political and not just economic have prompted a backlash, with many countries such as