Berlin - German Chancellor Angela Merkel said Tuesday she would fight pressure from the European Union to curb state influence over Europe's biggest carmaker, Volkswagen.

"The federal government is on the side of VW," the chancellor told an assembly of 18,000 workers at the company's main plant in Wolfsburg in the state of Lower Saxony.

The government has drafted a reform of legislation on Volkswagen which it believes satisfies EU law while cementing veto powers asserted by Lower Saxony with just over 20 per cent of VW shares.

Merkel said the state must be allowed to retain its veto rights. "We will present this view forcefully and in all clarity to the European Commission," she said.

Lower Saxony state Premier Christian Wolf, who was present at the assembly, said Volkswagen had become "Germany's most valuable company," partly as a result of participation by his state.

He said demands from Brussels, which has threatened to fine Germany if it does not repeal the veto law, were placing a burden on the company.

Volkswagen employees support the law, but it is opposed by Porsche, the company's main shareholder, which is seeking to cut down the influence of Lower Saxony and VW unions.

Porsche proclaimed last week its effective majority control of its larger competitor with 35 per cent of the shares, enough to dominate shareholder meetings where fewer than 70 per cent of shares are ever represented.

VW's powerful works council earlier this month organized a massive protest of tens of thousands of workers against the European Commission action to abolish what is called the "VW law." (dpa)