This information is derived from the State Department's Office of Investment Affairs' Investment Climate Statement. Any questions on the ICS can be directed to
Last Published: 1/17/2017

The formal term for state-owned enterprises (SOEs) in Germany translates as “public funds, institutions, or companies,” and refers to entities whose budget and administration are separate from those of the government, but in which the government has more than 50% of the capital shares or voting rights. Appropriations for SOEs are included in public budgets, and SOEs can take two forms, either public or private law entities. Public law entities are recognized as legal personalities whose goal, tasks and organization are established and defined via specific acts of legislation, with the best-known example being the publicly-owned promotional bank KfW (Kreditanstalt für Wiederaufbau). The government can also resort to ownership or participation in an entity governed by private law if the following conditions are met: doing so fulfills an important state interest, there is no better or more economical alternative, the financial responsibility of the federal government is limited, the government has appropriate supervisory influence, yearly reports are published, and such control is approved by the federal Finance Ministry and the ministry responsible for the subject matter.

Government oversight of existing SOEs is decentralized and handled by the ministry with the appropriate technical area of expertise. The primary goal of such involvement is the furtherance of the public interest rather than the generation of profits. The government is required to end its ownership stake in a private entity if tasks change or technological progress provides more effective alternatives, though certain areas, particularly science and culture, remain permanent core government obligations. German SOEs are subject to the same taxes and the same value added tax rebate policies as their private sector competitors. There are no laws or rules that seek to ensure a primary or leading role for SOEs in certain sectors/industries. Private enterprises have the same access to financing as SOEs, including access to state-owned banks such as KfW. Under the law, SOEs are subject to hard budget constraints which are generally enforced.

The Federal Statistics Office maintains a database of SOEs from all three levels of government (federal, state, and municipal) listing a total of 15,314 entities for 2013, or 0.4% of the total 3.6 million companies in Germany. SOEs in 2013 had €529 billion in revenue and €514 billion in expenditures. 35% of SOE revenue was generated by energy suppliers, 10.5% by health and social services, and 5.6% by ground transportation-related entities. Measured by number of companies rather than size, 88% of SOEs are owned by municipalities, 10% are owned by Germany’s 16 states, and 2% by the federal government.

The Federal Finance Ministry is required to publish a detailed annual report on public funds, institutions, and companies in which the federal government has direct participation (including a minority share), or an indirect participation greater than 25% and with a nominal capital share worth more than €50,000. The federal government held a direct participation in 107 companies and an indirect participation in 566 companies at the end of 2014, most prominently Deutsche Post (21%), Deutsche Telekom (31.7%) and Deutsche Bahn (100%). Federal government ownership is concentrated in the areas of administration/increasing efficiency, science, infrastructure, defense, development policy, economic development and culture. As the result of federal financial assistance packages from the federally-controlled Financial Market Stability Fund during the global financial crisis of 2008-9, the federal government still has a partial stake in several private banks, including a 15.6% share in Commerzbank, Germany’s second largest private bank.

Publicly-owned banks also constitute one of the three pillars of Germany’s banking system (cooperative and commercial banks are the other two). Germany’s savings banks are mainly owned by the municipalities, while the so-called Landesbanken are typically owned by regional savings bank associations and the state governments. There are also many state-owned promotional/development banks which have taken on larger governmental roles in financing infrastructure. This increased role removes expenditures from public budgets, particularly helpful in light of Germany’s balanced budget rules, which go into effect for the states in 2020.

One case of a German partially state-owned enterprise is automotive manufacturer Volkswagen, in which the German state of Lower Saxony owns a 12.7% stake (the fourth largest), but controls 20% of the voting rights. The so-called Volkswagen Law, passed in 1960, limited individual shareholder’s voting rights in Volkswagen to a maximum of 20% despite the actual number of shares owned, so that Lower Saxony could veto any takeover attempts. In 2005, the European Commission successfully sued Germany at the European Court of Justice (ECJ), claiming the law impeded the free flow of capital. The law was subsequently amended to remove the cap on voting rights, but Lower Saxony’s 20% share of voting rights was maintained, preserving its blocking minority against hostile takeovers. In 2013, the ECJ judged that the amended law complied with the required modifications of the earlier ruling.

Deutsche Bahn, the 100%-federally controlled railroad company, has been investigated for potential abuse of a dominant market position. In 2012, the European Commission (EC) opened an investigation into whether the subsidiary Deutsche Bahn Energy operated an anticompetitive pricing system for electricity supplied to the railway’s network, including whether discounts applied by Deutsche Bahn to its subsidiaries led to higher prices for its competitors in the rail freight and passenger markets. The EC closed the investigation in 2013 after Deutsche Bahn implemented a new pricing system without rebates or discounts from July 2014 onwards and paid a one-time retroactive refund of 4% for 2013. The Federal Cartel Office announced in January 2014 its intention to investigate whether Deutsche Bahn has taken advantage of its market position by restraining competitors from selling tickets at Deutsche Bahn’s stations. The investigations are ongoing and the Cartel Office confirmed in March 2016 that it is still looking into charges against Deutsche Bahn for allegedly abusing its powerful market position.

In November 2013, the EC initiated legal proceedings against Deutsche Post at the European Court of Justice over a long-running case in which Deutsche Post was ordered to repay public pension subsidies. The original complaint was raised by U.S. parcel delivery firm UPS. Deutsche Post allegedly used public money to cover losses resulting from below-cost pricing in its parcel delivery services, thereby undercutting rivals. The subsidies were intended to go towards Deutsche Post’s public service functions including letter delivery in Germany. At the time, the EC competition commissioner told reporters, “[b]eneficiaries of state support for public interest services must not use this support to finance sectors open to competition.” The subsidies under question were provided since 2003 to cover the pension liabilities of civil servants taken on by Deutsche Post from the previous government-owned postal administration during the company’s partial privatization in the mid-1990s. The EC said Deutsche Post was “overcompensated” for these legacy pension costs since it was getting both a subsidy from the government as well as an increase in regulated letter prices, which was specifically intended to cover pension costs. In a September 2015 ruling, the European Court of Justice declared the EC proceedings against Deutsche Post as unlawful and closed the case.

OECD Guidelines on Corporate Governance of SOEs

The government codified the corporate governance considerations for SOEs in 2009 in the Public Corporate Governance Codex. The codex obligates the federal government to consider environmental sustainability and social responsibility, avoid conflict of interests, support transparency through mandatory public reports, improve oversight and quality of leadership, and increase efficiency. SOEs are required to make a formal annual declaration of their compliance with the codex. According to the OECD, the codex strengthened the reporting requirements of previous arrangements, and, in this sense, Germany has moved toward a central coordination of SOE-related practices and, arguably, taken a step from a sectoral toward a dual ownership model for SOEs.

Sovereign Wealth Funds

The German government does not currently have a sovereign wealth fund or an asset management bureau. Following German reunification, the federal government set up a public agency to manage the privatization of assets held by the former East Germany. In 2000, the agency, known as TLG Immobilien, underwent a strategic reorientation from a privatization-focused agency to a profit-focused active portfolio manager of commercial and residential property. In 2012, the federal government sold TLG Immobilien to private investors.

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