Privatizations, Golden Shares, Investment Screening and Bailout Agreements in the Context of Article 345 TFEU

The relationship between privatizations of State-owned companies and neutrality of the EU Treaties towards national provisions governing property ownership, according to Article 345 TFEU, has become salient in the light of golden shares, investment screening rules and bailout agreements. I analyse this relationship in my recent book chapter published in the book The Law and Geoeconomics of Investment Screening, 2025, Springer, which I co-edited with Jens Hillebrand Pohl, Steffen Hindelang and Janosch Wiesenthal.

Privatizations and the outer limits of Article 345 TFEU 

Article 345 TFEU refers to the Treaties’ neutrality concerning national provisions on property ownership.  According to this article, ‘(t)he Treaties shall in no way prejudice the rules in Member States governing the system of property ownership’. The fact that some business operations or activities occur in the private or public sector does not infringe the Treaties. Member States can nationalize private property or privatize State property; as a result, the Member States’ policy choices about nationalizations or privatizations fall outside the scope of the Treaties. In its golden shares case law, the CJEU provided the following interpretation of Article 345 TFEU: the EU fundamental freedoms (freedom of establishment (Article 49 TFEU) and free movement of capital (Article 63 TFEU)) do not apply to a national rule falling within the scope of Article 345 TFEU.  If Article 345 TFEU applies to a particular national measure, the issue of compatibility of that measure with fundamental freedoms does not arise, as EU law does not apply in that case. 

The CJEU specified this interpretation of Article 345 TFEU in the context of golden shares.  On the one hand, Article 345 TFEU permits Member States to preserve special rights and to adopt golden shares in privatized companies. The decision of Member States to maintain these golden shares and, as a matter of fact, the existence of these special rights, which are property rights, are included in the scope of Article 345 TFEU but not in the scope of fundamental freedoms, as they constitute an economic policy decision by national governments. On the other hand, both the rights attached to these golden shares, which constitute property rights, and their exercise must comply with the fundamental freedoms and are not caught by Article 345 TFEU. Hence, the existence of a golden share in the capital of a privatized company that falls under national property laws can be differentiated from exercising the rights deriving from that golden share, which must adhere to the fundamental freedoms. It is obvious that this differentiation between the existence and the exercise of property rights (golden shares in privatized companies in our analysis) could draw the line between Article 345 TFEU and the fundamental freedoms. Such interpretation of Article 345 TFEU enables the internal market to operate smoothly, as the Member States are unable to utilise Article 345 TFEU for excluding specific national privatization transactions from the scope of fundamental freedoms.

Investment screening of privatizations

A privatization process of a State-owned company, which constitutes the object of a foreign direct investment (FDI), could be screened by the Member State for potential threats to public order or public security. The privatization process, which means the implementation and execution of the decision to privatize a State-owned company, including the content and implementation of special rights promoted by golden shares, falls within the scope of fundamental freedoms. It is interesting to examine how a national investment screening mechanism, which is directed towards privatization constituting an FDI, fits into the scope of fundamental freedoms.

EU law applies in principle to national investment screening mechanisms adopted by Member States, which means that the national rules included in such national investment screening mechanisms must comply with fundamental freedoms.  First, the decision of a Member State whether to adopt a national investment screening mechanism is a policy decision. It should be stressed that Member States are not obliged to adopt national investment screening mechanisms, which is also asserted by Recital 8 of the Preamble of Regulation 2019/452 on FDI screening. When a Member State decides to adopt the legal framework of a national investment screening mechanism, the investment screening process is part of the privatization process. The screening of the foreign investor, to which the ownership of shares and the corporate control of the State-owned company would be potentially transferred by the Member State, is part of the privatization process. The argument that investment screening is part of the privatization process is supported by the fact that the decision on whether the Member State would ultimately transfer the ownership of the shares and the corporate control of the State-owned company to the particular foreign investor (ie, whether the privatization would be approved or rejected regarding the specific foreign investor) depends on the outcome of the investment screening process. On the one hand, Member States are not obliged to adopt a national investment screening mechanism, which is compatible with the interpretation of Article 345 TFEU. On the other hand, when a Member State decides to adopt a national investment screening mechanism, the application of this mechanism falls within the scope of fundamental freedoms.

Article 345 TFEU and privatizations in Cyprus as part of its bailout agreement

The privatization programme of Cyprus, which was an over-indebted Member State during the period of Eurocrisis and which was bound by a bailout agreement, constitutes a very interesting case study, where the conclusions deduced about the scope of Article 345 TFEU and the scope of the fundamental freedoms could apply. Law 28(Ι) of 2014 regarding the Regulation of Issues of Privatizations (‘Privatizations Law’) laid down the procedural framework for privatizations in Cyprus. In 2016, the Economic Adjustment Programme of Cyprus ended and Cyprus overcame the financial crisis. Due to various political considerations, the House of Representatives of Cyprus adopted a subsequent Law repealing the Privatizations Law.  

The decision of Cyprus to proceed to privatizations of certain State-owned enterprises, even as part of its obligations in the context of its bailout agreement, falls within the scope of Article 345 TFEU and outside the scope of fundamental freedoms. The same applies also for its decision not to proceed or even to stop privatizations; the decision of Cyprus to repeal the Privatizations Law falls within the scope of Article 345 TFEU and outside the scope of fundamental freedoms. The abrogation of the procedural framework for the privatisation programme of Cyprus constitutes a decision related to the system of property ownership of Cyprus and, more specifically, to whether the ownership of a State-owned enterprise would remain within the State or would be privatized.

Conclusion

Member States’ decision whether to proceed to privatization falls within the scope of Article 345 TFEU but outside the scope of fundamental freedoms. Although Member States can decide freely whether a State-owned company should be privatized, the content of the privatization decision falls within the scope of fundamental freedoms and must comply with them in terms of the methods used for executing privatization. Such a distinction between Article 345 TFEU and the fundamental freedoms has an impact on the investment screening of a privatization and on the privatizations of overindebted Member States affected by the Eurozone crisis and bound by bailout agreements.

The full chapter can be accessed here.

Thomas Papadopoulos is an Associate Professor of Business Law at the University of Cyprus.