Berlin is tightening its control of German industries in an effort to shield them from foreign investment takeovers through a proposed law to take effect before June 2008.

The new legislation presented to Chancellor Angela Merkel’s government on October 30 would allow the German government to veto any foreign investment of more than 24 percent if Berlin determined it posed a national security threat.

The proposed legislation provides for the government to be notified about such an investment and gives Berlin up to four weeks to approve or veto it. In cases of investments on stock markets, the government would have three months to decide or call for a roll-back of the deal, a measure to compel foreign investors to notify of partial takeover bids.

The new law is largely a response to growing takeover attempts by non-European-based companies. It wasn’t until a state-owned Russian fund showed interest in acquiring a stake in Deutsche Telekom ag and the Dubai International Financial Center bought a 2.2 percent stake in Deutsche Bank ag that the German government decided to move more aggressively to shore up business defenses against foreign takeovers.

Germany’s protectionist move illustrates growing tension caused by competition from non-Western neighbors, especially Russia, China and Middle Eastern Muslim nations in Europe. Cash-rich and technology-limited, many of these often-state-owned enterprises are seeking to pluck fruit from corporate Europe, putting them in direct competition with German interests. This legislation, if adopted, would be a signal that Germany is more than willing to erect trade barriers to inhibit foreign entities from infringing on its turf, even if it means reciprocal legislative action might be taken against German companies elsewhere in the world.

Conversely, Germany’s new legislation is clearly not aimed at nations within Europe. German companies dominate the European corporate landscape, dwarfing many of their European rivals. German companies have been extremely active in acquiring operations in other EU countries. Knowing this, German politicians would be unlikely to use the legislation to instigate an inter-European protectionist revival that would invite political backlash and limit the ability of German corporations to further extend their presence on the Continent.

German corporate influence in Europe is growing rapidly. Not since the days of World War ii have German companies been so influential in mainland Europe. For information on why Germany is trying to limit non-European corporate competition in Europe, read “Germany’s Corporate Blitzkrieg.”