The EU Court of Justice has ruled that the Portuguese government's 'golden' shares in Portugal Telecom are an unjustified restriction on the free movement of capital. The court said the golden shares grant the Portuguese state a disproportionate influence over decision-making in the company, which is liable to discourage investments from operators in other EU member states. The golden shares give the state a veto right over amendments to the company's articles of association and other important decisions. The state most recently used the veto right to block the proposed sale of PT's stake in Brazilian mobile operator Vivo to co-shareholder Telefonica. Despite the rest of PT's shareholders approving the deal, the state used its 500 golden shares to block the deal in the name of the "national interest". The court rejected the Portuguese state's reasoning for maintaining the golden shares after the privatisation of PT. The Portuguese government claims its golden shares in PT aim to ensure the security of the availability of the telecommunications network in case of crisis, war or terrorism. Although the court admits that this objective may be a ground of public security and may justify a restriction on the free movement of capital, it underlined that public security may be relied on only if there is a genuine and sufficiently serious threat to a fundamental interest of society. However, Portugal merely raised that ground without stating how the holding of golden shares would make it possible to prevent such an interference with public security. The EU Court of Justice also found that the exercise of the special rights by the Portuguese state is not subject to any specific and objective condition or circumstances. Neither the legislation on privatisations nor PT's articles of association establish any criteria determining the circumstances in which those special powers may be used. The court thus believes that such uncertainty is a serious interference with the free movement of capital, and confers on the national authorities a latitude that cannot be regarded as proportionate to the objectives pursued. The case was brought by the European Commission against Portugal, and the government is required to adhere to the court's ruling immediately or risk the court imposing fines for violating EU law.
