The European Commission said on Wednesday it would begin legal action against the German government in a bid to dismantle the ?golden share? arrangement that gives the state of Lower Saxony a controlling stake in carmaker Volkswagen.

The German justice ministry said it regretted the Commission?s decision to sue Germany before the European Court of Justice but signaled its conviction that the "VW law", which it believes violates EU rules guaranteeing free movement of capital, is legal.