German employee codetermination has been greatly affected by the economic and political environment in which it operates. However, little attention has been paid to the impact of industrial policy on the behavior of unions, managers, employees, and works councils in this participatory decision-making process. Labor unions have historically enjoyed a particularly strong voice in the German steel industry. Advocates of codetermination consider the joint union-management decision-making process in the German steel industry a model that deserves imitation in other countries. However, the interaction of an EEC-imposed industrial policy with codetermination in a declining industry has had unanticipated and detrimental consequences. These are particularly noticeable in the case of Arbed-Saarstahl, a marginal enterprise in a depressed industrial region. There is strong evidence that EEC steel policy in combination with codetermination has encouraged management, union leaders, and employees to delay difficult decisions and rely on federal subsidies.