Reuters, Mar 30 2004 BRUSSELS, March 30 (Reuters) - The European Commission told Germany on Tuesday it must scrap a law that protects carmaker Volkswagen AG from hostile takeovers or face court action, a Commission spokesman said on Tuesday. The Commission believes Germany's so-called VW law breaches EU treaty rules on the fundamental freedoms of movement of capital and investment. But the German government has defended the law as vital to protect jobs at Europe's largest carmaker. The fresh legal step by the European Union's executive follows an earlier warning to Germany over the law and will be followed by action in the European Court of Justice if Berlin does not comply with the EU request within two months. "They have got two months to reply," Commission spokesman Jonathan Todd said. In January the EU executive postponed a decision on whether to take further legal action against Germany to allow for further contacts between the Commission and German authorities. If Berlin refuses to change the law, it will have to defend its case in front of the European Court of Justice, the EU's highest court.