6 March 2019

In a recent speech in Brussels, CDU leader Annegret Kramp-Karrenbauer stated that “Europe must change to prosper,” raising the issue of geopolitical challenges and competition with China and the United States. French President Emmanuel Macron and German Chancellor Angela Merkel also said they want to push for a new Industrial Strategy in the EU to tackle globalisation challenges. Indeed, ahead of the EU elections, apart from the challenge of Eurosceptic groups and disagreements in policy areas such as migration or Eurozone reform, a new area of contention has been reignited in the EU: competition policy, and, in particular a Franco-German attempt to overhaul antitrust rules.

This comes shortly after the European Commission rejected the Alstom-Siemens merger that would create a European rail champion to compete with Chinese firm CRCC. European Competition Commissioner Margrethe Vestager blocked the merger , saying that “customers, including train operators and rail infrastructure managers, would have been deprived of a choice of suppliers and products and harmed European taxpayers.” Rising prices for consumers were also a reason for opposing the merger with the underlying rationale that the best spur to economic growth is rivalry within the EU’s single market. Competition authorities in Britain, the Netherlands, Belgium and Spain also expressed concerns that the new railway company would overpower smaller rail manufacturers and increase market prices.

A day before the merger was set to be rejected, German Economy Minister Peter Altmaier announced an industrial strategy for 2030 to boost German industries in the competition against China and the US. Specific industries targeted include the car industry, medical devices industry and aerospace, with the German objective being that by 2030, industry should make up 25% of Germany’s economic value and 20% of the EU’s. Altmaier also called for an EU Industrial Strategy based on the strategies of important EU industrialized countries.

Calls to change the competition rules are not new; back in 2007, Former French President Nicolas Sarkozy had called for the creation of European champions and offering companies state aid. Indeed, almost a decade ago, it was France who asked the Commission for change, arguing that competition rules needed to be altered to cope with the financial crisis. The European Commission has been steadfast on state aid and competition rules.

Historically the UK has granted relatively little state aid compared to other member states and has been one of the staunch champions of maintaining the EU approach on state aid. The UK has also opposed mergers in the past. But with Brexit on the horizon and a Franco-German axis pushing for a different direction, the tide might be changing in the struggle between those advocating a free market and those pushing for an “industrial policy” with a protectionist outlook. Competition policy might be replaced by an “industrial policy” which aims to create European economic champions rather than solely foster competition and innovation. Is it a ripe time for change?

France and Germany urge for revision of rules

During Macron’s presidency, the French have called for the creation of European giants that can prosper on a global scale. French Economy Minister Bruno Le Maire was the first to set out concrete suggestions that would change EU competition rules in the wake of the merger rejection. The proposed changes include EU national leaders having the right to overturn the Commission’s merger decision, make a “dynamic rather than static analysis” and be “more systematic” in evaluating competition risks based on companies’ market share at global level. This would in essence alter what constitutes a relevant market, shifting the evaluation to a global rather than continental scope. Overall, this would entail “replacing expert analysis conducted within a well-defined legal framework with political decision-making.”

After meeting with Altmaier, a common Franco-German proposal emerged to consider allowing the European Council the right to override some antitrust decisions by the European Commission in certain “well-defined cases.” The proposal also suggests greater Commission flexibility when assessing “relevant markets.” Le Maire added,

It’s the first time that France and Germany have put forward proposals to transform EU competition rules…We have powerful, modern technologies and we don’t want them to serve other continents than ours.

Support moving in that direction?

Annegret Kramp Karrenbauer, who might be the next German Chancellor, has also endorsed a change of direction in EU competition rules. She said, “Europe cannot be only the receiver of strategic decisions of others…China or the USA. We have to be strong ourselves to shape the global rules…industrial policy and future technologies. We have to take a very sober look: Today’s competition law is geared to the current situation — but how can it take into account the competitive situation that is developing around us?” In a CDU meeting in early January, she had discussed the need to address the future of the coal and automobile industries. Furthermore, the centre right European People’s Party (EPP), which traditionally has had the largest share of the vote in the European Parliament, is also thought to endorse a change in the rules. Manfred Weber, leader of the EPP, also pledged his support for it.

The Hanseatic League, a group of fiscally conservative Northern European countries that are united in their opposition to Macron’s proposals for Eurozone reform, have not taken an official stance. The Hansa League has held economically liberal views, with its creation largely linked to the need to wield more influence as a cohesive bloc after Brexit. Thus, their opposition to the Franco-German proposal would be unsurprising. Le Maire had already in November accused them of weakening European industries against Chinese and US competition, so another confrontation might take place. Ultimately, a change in EU competition rules would signal a weakening of Commission power at the expense of smaller member states. This move might also placate a group of Eurosceptic parties who challenge globalisation.

However, opposition to a change in competition rules is evident in Germany, with a Frankfurter Allgemeine piece emphasising innovative firms as new way forward and pointing to Airbus as failed example of state support. Former EU Competition chief Mario Monti also said that any short-term gains would not justify “undermining the credibility of EU competition policy.” Nevertheless, with the vanishing impulse of the UK, Hansa League unlikely to effectively push back, Hungary and Poland focusing on domestic troubles, the centre of gravity is certainly moving towards the Franco-German proposal.

Conclusion

During a time when the EU faces internal challenges by anti-EU parties, one of its largest members is leaving the bloc and a potential trade war with the US is looming, France and Germany seem to be able to coalesce around this new industrial strategy. Indeed, swift movement seems to be taking place on the change of EU Competition policy rules. The EU usually achieves slow progress to generate consensus. Yet, pressure by the Franco-German alliance against the backdrop of a changing world economy and pressure for Europe to become a stronger geopolitical force might precipitate change more quickly.

Brexit is set to change the political balance in the EU; before the UK has formally left, internal dynamics are changing. With France already supporting a change of direction and Germany now officially backing it, the absence of the UK at the negotiating table might catalyse the process of altering EU competition policy. This would mark a significant change of path, since the European Commission decisions on competition policy has traditionally been one of the areas where the EU had a lot of leeway and the UK did not regard this as contentious. A triumph of inter-governmentalism over institutions that are in place to safeguard the interests of smaller member states will set a new precedent for the EU.