The Wall Street Journal reports that the German economics ministry is drawing up new rules for foreign investors who want to buy German companies. The goal of the new regulations is to block the takeover of German companies by increasingly powerful and active sovereign wealth funds, and by companies owned by foreign states.However, not all foreign countries are included in the new rules. Significantly, EU countries are exempt. This leaves a much smaller group of potential countries that may fall under the regulations. China, Russia and a few Middle Eastern stand out, and it's probably not a stretch to say that worries about the growing power of those countries inspired the new rules.
The new rules would, of course, represent a significant restriction on the global flow of capital. The big question is whether this move is part of a growing fear about the power of foreign investment and the beginning of a more restrictive investment environment. Sovereign wealth funds now control over $2.5 trillion of assets and are growing rapidly. Efforts to restrict their reach could have an effect on global growth.
This development may, however, be peculiar to Germany. Germany's political climate is very different from the U.S. when it comes to the status of financial investors of all stripes. In fact, the basic operation of capitalism itself is sometimes brought into question in Germany in ways that are unimaginable in the the English-speaking world.
In 2005, Franz Müntefering, a leader of the Social Democratic Party, was quoted as saying: "Some financial investors spare no thought for the people whose jobs they destroy . . . They remain anonymous, have no face, fall like a plague of locusts over our companies, devour everything, then fly on to the next one." This statement sparked a national debate over the way capitalism works and should be regulated in Germany. It's interesting to note that the Social Democratic Party is not a fringe political group. It's the oldest and largest political party in the country, founded in the 1860s. So it shouldn't come as a surprise that Germany is interested in restricting the flow of capital and protecting its national industries.
