BRUSSELS -- The European Commission, seeking to avoid another damaging row with Germany, has delayed indefinitely a decision on pursuing legal action against a law protecting Volkswagen from hostile bids.
An EU source said on Tuesday European Commission President Romano Prodi and other members of the EU executive had been worried over the social impact of any move against the law, which Germany, the EU's biggest member state, says protects jobs.
A senior Commission official said Prodi on Monday met Internal Market Commissioner Frits Bolkestein, leading the case.
"The Volkswagen case is postponed indefinitely so as to allow further contacts between the Commission and German authorities on a series of outstanding infringement cases," Commission spokesman Jonathan Todd told reporters.
The first EU source said it was better that the controversial issue be dealt with by Prodi himself and German Chancellor Gerhard Schroeder.
A source close to the dossier said the Commission thought talking about the issue informally was better than escalating it to legal action.
Relations between Brussels and Germany have already been put under strain due to disagreements over Berlin's lack of respect for the bloc's rules on limiting budget deficits.
Germany has also been in the forefront of demands by a group of six nations which contribute most to the EU budget to cap spending at current levels. The EU executive says this will effectively lead to spending cuts after enlargement.
The Commission had been considering action over the VW law which it sees as an infringement against the EU's rules on the free movement of capital. It has launched actions against a range of countries over rules which give governments blocking stakes, so-called golden shares, in key, formerly state-owned firms.
Germany has defended the VW law as vital to protect jobs and the source said Prodi took the social aspect into consideration.
"The president of the European Commission, bearing in mind that the law is equal for everybody, has always paid great attention to all the non-macroeconomic consequences."
The EU source insisted the case had not been dropped. "The game is not over, we have only postponed a decision."
The Commission has already warned Germany once that the law breaches EU rules.
It had been expected to launch a second phase of legal action, which involves a formal warning to Germany to change the law or face legal proceedings at the European Court of Justice, the EU's highest court.
The EU source said several of the non-German commissioners in the EU executive had also been in favor of taking the social consequences of action over the VW law into account.