Next month, the new European Commissioner-designate for competition policy, Spanish socialist Teresa Ribera, will appear before the European Parliament’s Committee on Economic and Monetary Affairs (ECON). A key question she will need to clarify is to what extent the European Commission should be outlawing mergers between companies.
In an interview, Ribera already suggested that EU competition policy needs to “evolve” away from the policies of the outgoing EU competition commissioner, Denmark’s Margrethe Vestager, that are seen as more hostile to mergers. In 2019, the Commission for example banned the proposed acquisition by German industrial concern Siemens of France’s Alstom “to protect competition in the European railway industry.” Arguments that this would in fact make it more difficult for them to compete with Chinese or American companies fell on deaf ears. At the time, Elie Cohen of the French think tank National Centre for Scientific Research (CNRS) argued that the real markets are abroad, writing: “While the European high-speed rail market is stagnating, China has just launched an additional investment plan of 125 billion dollars to build 3,200 km of high-speed rail lines in addition to a network of 25,000 km.”
Antitrust policy is the part of competition policy dedicated to preventing certain companies from acquiring excessive market power in a certain market. The problem here is defining the relevant market. Should we look at the European high-speed rail market or the global one? Or should we look at the transport market, instead of merely the railways market? Good arguments can be made for various approaches, resulting in differing outcomes.
The international trade angle
This debate becomes even more difficult when one adds the ongoing challenge regarding how Western economies should position themselves towards China’s massively subsidized and centrally planned economy. Here, some argue that heavily subsidized non-European competitors should not be tolerated on the European market while European companies are in theory prevented from receiving subsidies.
For sure, the United States, supposedly the home of free market economics, is going a lot further than the European Union here. U.S. President Joe Biden is even preparing to block the takeover by Japan’s Nippon Steel of U.S. Steel. This deal, worth $15 billion, was announced last year. To stop Chinese investment that is sensitive to Western security interests is certainly a good idea. To prevent heavily subsidized Chinese companies from distorting competition in Western markets, which are certainly closer to free market orthodoxy than China, can perhaps be defended, case by case. Japan is, however, a solid Western ally. Also, the proposed merger would have created one of the world’s biggest steel companies outside of China. In other words, blocking it may actually weaken the West and its allies economically.
Investors were positive about the merger and the United Steelworkers union is against it. U.S. Steel has however warned that blocking the deal would risk “thousands of jobs,” as it would force the company to close down factories and potentially move its headquarters from Pennsylvania, a crucial swing state in the upcoming U.S. election.
Biden is now claiming that blocking it is needed on national security grounds. His decision is supported by Donald Trump, which is not surprising, given his protectionist instincts. If Trump is elected, let’s hope that his administration ultimately realises that free trade is what makes America strong. At least that is what the Republican party stood for during the last few decades. Until 2020, the U.S. had formally only blocked deals that involved Chinese firms under the legal instrument used in this case. The fact that it is used for a Japanese company should raise concerns about where all of this is heading. Also, Europe should reflect on whether a European company may be next, especially if Ribera would continue the confrontational policies of her predecessor against U.S. Big Tech. Trump dubbed Vestager the “tax lady” for a reason.
The EU will be facing similar challenges from potential takeovers by non-European companies, but for Europe, the decision is a lot easier. Due to large-scale experimentation with energy supply, energy prices remain a lot more expensive for European companies than for their competitors overseas.
Not only Germany’s nuclear power exit is to blame here, but also centrally planned programmes meant to steer production in a politically desired direction, ignoring economic fundamentals. Today, the reality is setting in, and a whole range of such programmes are being scrapped, as they are simply not affordable. An example is how German conglomerate Thyssenkrupp is reviewing plans for “green steel,” which is receiving billions of subsidies. Simply returning to normal energy policies would strengthen Europe’s economy so fewer European companies would become takeover targets.
Investigating state aid
Apart from judging mergers, incoming EU competition commissioner Ribera will need to investigate cases of state aid. Increasingly, the EU Commission has been neglecting its duty to prevent member states from dishing out support to preferred domestic companies that would unfairly distort competition within the EU.
When entering office in 2014, Margrethe Vestager already openly argued it is “only natural that competition policy is political.” This became evident in the following years. In 2017, she allowed France to nationalise a shipyard to prevent an Italian takeover bid. Not long after, she permitted Italy to bail out Monte dei Paschi di Siena, one of Europe’s oldest surviving banks. Since COVID, all brakes have been let loose as the Commission relaxed the rules, permitting Germany to promise enormous amounts of state aid, making up more than 30% of its GDP. In 2021, EU member states “disbursed massive amounts of State aid to mitigate the devastating economic effects of the pandemic,” the Commission itself has noted.
A whopping 91% of state aid is now estimated to be exempt from the EU Commission’s scrutiny, with a whole lot of government support considered to be justified in itself. This includes social assistance, development, transport infrastructure, natural disaster relief, culture, education, environmental protection, innovation, and digitalisation. Ribera has called for firmer support for the position of smaller member states on state aid rules. That’s welcome, even if she has called for replacing national state aid with more EU state aid, as suggested by the Draghi report, financed with a new round of jointly issued EU debt. This would export the ills of central planning to the EU level. Thankfully, there is a lot of opposition to it, not least from Germany. If Ribera sticks to taking a more relaxed stance on mergers and protects the single market from excessive subsidies by big member states, the Spanish socialist may actually turn out to be a greater friend to free markets than her nominally ‘liberal’ predecessor.
