A new narrative is gaining prominence in European circles: if the EU wants to compete globally, it must shed its emphasis on competition rules and relax its stringent merger regulations to favour the rise of European corporate champions. There are good reasons to be sceptical that this ambitious industrial policy goal will ever become a reality.
European Champions – The Debate
The debate on European competition rules was reignited in February by commissioner Margrethe Vestager’s decision to veto the merger between the Alstom and Siemens. The two rail-builders wanted to form a super conglomerate capable to compete with China’s state-backed giant CRRC and had secured the blessings of their respective governments for the deal.
When the Commission halted the mergers on grounds of consumer protection and fair competition, it sparked a vocal backlash from France and Germany. France’s finance minister Bruno Le Maire and his German equivalent Peter Altmaier signed a joint manifesto calling for an overhaul of the EU’s competition rulebook. This included relaxing merger regulations and giving the Council, where EU heads of states sit, the power to override vetoes by the Commission.
The point of the Manifesto is straightforward. In an age dominated by mounting protectionism and increasing foreign competition, the EU needs to stop fretting about consumer protection. Too strict anti-merger rules prevent European companies from achieving scale and competing with Chinese and US companies on an equal footing. Europe needs a more active industrial policy, capable of fostering M&A deals such as the Alstom-Siemens one and lead to the rise of “European champions”.
The situation might seem propitious for reform. Both Merkel and Macron have auspicated the emergence of European champions through merger deals. There is growing awareness regarding European companies’ difficulties in becoming global players, and Brexit will remove a proponent of free-market principles from the European debate.
Challenges
Yet there are serious hurdles ahead. Firstly, the Franco-German momentum for reform is weaker than it seems. As it often occurs with plans of EU reform, grandiose speeches from Paris have met only half-hearted enthusiasm on the other side of the Rhine. While Mr Altmaier and even Chancellor Merkel backed the Manifesto, the Christian Democratic Union (CDU), the party they both hail from, is deeply divided over the issue. CDU traditionalists are steeped into Ordoliberalism, the distinctively German doctrine that the state’s role is to provide a clear legal framework while abstaining from any direct intervention in the economy. Therefore, they are cautious about conflating geopolitical considerations with competition policy.
Secondly, the EU does not see favourably a relaxation of regulations. Officials in Brussels pride themselves on their efforts to protect European citizens from unfair market practices. As the Alstom-Siemens case demonstrated, the Commission has gained unprecedented autonomy in the use of antitrust tools and is now reluctant to abdicate this newly-found power. While commissioners themselves are politically appointed, and hence receptive to the industrial policy objectives of their capitals, their choices are constrained by a strict legal framework, a highly independent staff and the scrutiny of the European Court of Justice. Even if the next competition commissioner is less sanguine than Mrs Vestager when it comes to contrasting market monopolies, the EU will hardly take a softer attitude towards the enforcement of merger rules.
Ultimately, however, the greatest challenge to the rise of European champions does not originate from the commission. As Mrs Vestager noted, the Directorate-General for Competition blocked only 9 of over 3,000 merger cases scrutinised over the past 10 years. A far greater obstacle comes from the enduring tendency of national governments to protect their national champions and keep European competitors away from strategic sectors.
In Conclusion
Pro-European rhetoric aside, France offers a striking example of this tendency to thwart cross-border acquisitions when they threaten state interests. Last May Italian-American carmaker Fiat-Chrysler Automobiles (FCA) proposed a US$33 billion merger to the French car-maker. The deal could be a breakthrough for both companies: Renault’s partnership with Nissan could grant FCA access to Asian markets, while the American presence on FCA’s board could shield the French firm from car tariffs threatened by US President Donald Trump. The new group would have been the third-biggest player in the automotive industry, combining Renault’s expertise in electric vehicles with FCA’s jeep and SUV-manufacturing business.
In other words, the FCA’s bid envisaged the creation of a global champion of the kind President Macron likes to perorate about. Yet the French government, which holds a 15% stake in Renault, drew very demanding red lines concerning job guarantees and headquarters and behaved uncooperatively throughout the negotiations phase, allegedly not to jeopardise Renault’s shaky alliance with Nissan. Hesitations and misgivings ended up exasperating FCA, which withdrew the merger offer on June 6.
This was not the first time French realpolitik trumped pro-European idealism on the matter of cross-border acquisitions. In 2017, Macron promoted the temporary nationalization of shipyard STX to prevent a takeover by another Italian company, Fincantieri. The interference, driven by electoral and strategic concerns, proved a major stumbling block for the prospected shipbuilding alliance that would have created a global leader in the industry. It took weeks of political manoeuvring to work out the terms of the deal, which is now being reviewed by the EU’s antitrust authorities. Interestingly, it was precisely the French government that referred the matter to the Commission, a move that irked Fincantieri and Italian Interior Minister Salvini as the latest ploy to sabotage the deal.
The debate The backlash against Mrs Vestager ignores that the greatest obstacle towards a more ambitious industrial policy is not the Commission, but precisely member states’ strategic calculations in terms of industrial policy. As long as governments do not shelve these short-term perspectives, European champions capable to compete internationally will struggle to materialise.
