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UPDATE 1-Germany affirms stance on VWlaw-sources

(Adds details, background)

BERLIN, June 20 (Reuters) - Germany has reiterated its position that a law protecting carmaker Volkswagen AG from takeover is consistent with European Union law in a statement to Brussels, government sources said on Friday.

European Internal Market Commissioner Frits Bolkestein had said that certain provisions of the so-called "VW law" restrict investment from other member states, violating EU treaty rules on the free movement of capital and the right of establishment.

Last month Germany was given an extra month to respond to legal steps against the law taken by the European Commission, which polices competition policy throughout the EU. The deadline expired on Friday.

The sources said the government statement to the EU's executive Commission reaffirmed Germany's view that the law did not breach treaty rules on capital movement or discriminate against foreign investors.

Volkswagen declined to comment on the statement.

The sources said the German government position had been agreed with the government of Lower Saxony, which holds around 20 percent of VW shares.

The Lower Saxony government has said the law protects Europe's largest carmaker from a hostile takeover.

Chancellor Gerhard Schroeder has defended the law which gives Lower Saxony, where Schroeder used to be premier, a blocking minority by capping shareholder voting rights at 20 percent.

(Additional reporting by Madeline Chambers in Frankfurt)