The EU big four – Paris, Berlin, Rome and Warsaw – have decided to send a letter, dated 4 February and reported by Politico, in which the finance ministers urge EU Commission vice-president Margrethe Vestager to proceed with a reform of EU competition rules aimed at easing and promoting the development of European champions to rival China and U.S.
For more than one year, Paris and Berlin have been pushing for new antitrust laws, after that on February 6th 2019, the European Commission blocked the mega merger between Germany’s Alstom and the French Siemens, the two Europe’s largest suppliers in the rail market.
While the agreeing parties perceived the merger as the possibility to create the corporate giant that Europe needed, Ms Vestager perceived it as a potential harm to European consumers, thus stopping the procedure. The Alstom-Siemens merger was to take place in response to the rise of state-sponsored companies, namely CRRC, a Chinese behemoth of the rail sector – and the result of a merger itself – that is supported by the rapid growth of the largely closed Chinese market. In this context, a European giant would be ideally positioned to resist the looming hegemony of CRRC.
Following EU Commission’s decision, the German and the French finance ministers proposed a ‘Franco-German Manifesto for a European industrial policy fit for the 21st century’, which rests on three fundamental pillars: improvement of coordination and collaboration to increase investments in innovation; adoption of defensive measures and reciprocity mechanism for public procurement with third countries, and lastly changes to the European competition framework. Broadly speaking, the main idea which it is based upon is the creation of an ambitious industrial strategy which would allow Europe to remain an industrial power looking towards 2030.
The Alstom-Siemens case had therefore brought about a fundamental question: should EU competition rules be changed to promote the development of ‘European champions’?
On the one hand, there are the advocates of the competition framework needs to take into consideration broader interests and the future implications of geopolitical threats. Put it simply, in order to compete globally, European firms need scale and to that effect, European champions’ creation should be promoted.
On the other hand, some argue that the merger would have reduced the number of players in the European rail industry and it would have exaggerated the competitive disadvantage of the two companies: CRRC’s revenue is indeed larger than Alstom’s and Siemens’ combined, but almost all of it originates from the Chinese market, while in international markets the two companies are three times larger than CRRC. More generally, they argue that the formation of European champions is not inhibited by control on mergers as long as the efficiency gains, given by synergies and complementarities, outweigh both the short-term and the long-term disadvantages, higher prices and less innovation and quality respectively.
Since the block of the merger, Ms Vestager has started a review of ways in which regulators define markets to allow for global competition, but she has not provided a timeline yet. In the letter, the signatories request Ms Vestager to provide such a timeline and to ‘evaluate and modernize’ the merger rules in Europe and to ‘define a relevant market in order to ensure fair and undistorted competition’.
In addition, they emphasize the role of ‘collegiality’ and invite Brussels to promote the active participation of member states in the shaping of the new rules. Brexit is also expected to help France and Germany have a more powerful voice in Brussels, which is also considering ways to control not only industrial but also digital threats coming from the US and China.
Annamaria Palmieri
For more than one year, Paris and Berlin have been pushing for new antitrust laws, after that on February 6th 2019, the European Commission blocked the mega merger between Germany’s Alstom and the French Siemens, the two Europe’s largest suppliers in the rail market.
While the agreeing parties perceived the merger as the possibility to create the corporate giant that Europe needed, Ms Vestager perceived it as a potential harm to European consumers, thus stopping the procedure. The Alstom-Siemens merger was to take place in response to the rise of state-sponsored companies, namely CRRC, a Chinese behemoth of the rail sector – and the result of a merger itself – that is supported by the rapid growth of the largely closed Chinese market. In this context, a European giant would be ideally positioned to resist the looming hegemony of CRRC.
Following EU Commission’s decision, the German and the French finance ministers proposed a ‘Franco-German Manifesto for a European industrial policy fit for the 21st century’, which rests on three fundamental pillars: improvement of coordination and collaboration to increase investments in innovation; adoption of defensive measures and reciprocity mechanism for public procurement with third countries, and lastly changes to the European competition framework. Broadly speaking, the main idea which it is based upon is the creation of an ambitious industrial strategy which would allow Europe to remain an industrial power looking towards 2030.
The Alstom-Siemens case had therefore brought about a fundamental question: should EU competition rules be changed to promote the development of ‘European champions’?
On the one hand, there are the advocates of the competition framework needs to take into consideration broader interests and the future implications of geopolitical threats. Put it simply, in order to compete globally, European firms need scale and to that effect, European champions’ creation should be promoted.
On the other hand, some argue that the merger would have reduced the number of players in the European rail industry and it would have exaggerated the competitive disadvantage of the two companies: CRRC’s revenue is indeed larger than Alstom’s and Siemens’ combined, but almost all of it originates from the Chinese market, while in international markets the two companies are three times larger than CRRC. More generally, they argue that the formation of European champions is not inhibited by control on mergers as long as the efficiency gains, given by synergies and complementarities, outweigh both the short-term and the long-term disadvantages, higher prices and less innovation and quality respectively.
Since the block of the merger, Ms Vestager has started a review of ways in which regulators define markets to allow for global competition, but she has not provided a timeline yet. In the letter, the signatories request Ms Vestager to provide such a timeline and to ‘evaluate and modernize’ the merger rules in Europe and to ‘define a relevant market in order to ensure fair and undistorted competition’.
In addition, they emphasize the role of ‘collegiality’ and invite Brussels to promote the active participation of member states in the shaping of the new rules. Brexit is also expected to help France and Germany have a more powerful voice in Brussels, which is also considering ways to control not only industrial but also digital threats coming from the US and China.
Annamaria Palmieri