A hydrogen-powered train, by French train maker Alstom, arrives at the station of Leipzig, eastern Germany, on February 01, 2019, for its first ride on a commuting connection between Leipzig and Grimma, Saxony. (Photo by Peter Endig / dpa / AFP) / Germany OUTPETER ENDIG/AFP/Getty Images
Siemens and Alstom had claimed the tie-up would create a European champion capable of taking on CRRC © AFP

Competition enforcement is probably the most powerful tool in the EU’s regulatory box. At the stroke of a pen, European officials can shape markets and override corporate decisions with an immediate impact on investment, profits and jobs. So when the EU’s mightiest member states complain competition rules are outdated and need an overhaul, it is important to sit up and pay attention.

Last week, France and Germany demanded changes to EU competition policy to allow European industry to survive against China’s state-backed giants. They were responding to the European Commission’s decision to block the creation of a railway equivalent of Airbus through the merger of the rail operations of Siemens and Alstom. It was a landmark ruling.

The two companies claimed the tie-up would produce a European champion capable of taking on rail behemoth CRRC. The commission judged that the loss of competition in some European markets for signalling and high-speed trains would be just too big, with the real risk of higher prices for consumers and less innovation.

Bruno Le Maire, France’s finance minister, said the decision was an economic and political “mistake”. He questioned the underlying analysis used by Brussels to reach its conclusion, adding in any case the rules were “obsolete”. French politicians have a long history of taking issue with bureaucrats in Brussels. So what is more surprising in this instance is the way Peter Altmaier, Germany’s economy minister, also weighed in against the commission’s judgment. The ministers said they would produce joint proposals before the end of May to change EU law “to better take into account the demands of international competition”.

Quite how they can achieve this without ripping up a tried and tested system for controlling mergers and protecting consumers remains to be seen. They will also need to persuade a majority of EU member states to back any changes. What Paris and Berlin appear to want is to give EU leaders the power to overrule merger decisions, a move that would destroy the legal certainty of the control process. They also want to compel EU officials to consider the impact of China’s emerging industrial giants on markets outside the EU and to allow contentious tie-ups to go ahead subject to subsequent monitoring by Brussels, even though customers and competitors are surely better at evaluating performance than officials.

The two capitals seem particularly aggrieved the commission excluded Japan, South Korea and China, the biggest market in the world by far, when reaching its assessment that Siemens and Alstom are already clear leaders and would be even more dominant when combined into one company. But Brussels excluded those three markets precisely because they are closed to international competition. EU officials also examined CRRC’s prospects of breaking into other markets and concluded that the political and regulatory winds were now blowing against Chinese corporate insurgents in many places where barriers to entry are extremely high.

Potentially more damaging would be any attempt to water down the primacy of consumer interests in merger controls. Competition policy is there to serve customers, including other industrial companies across the EU’s 28 member states, not just two countries with big corporate interests.

As Margrethe Vestager, EU competition commissioner pointed out, there is not a competition authority in the world that does not have serving customers as its fundamental purpose. In any case, the rules already allow for public interest overrides in various areas, such as media plurality and security.

They also permit government intervention when a case of market failure can be shown. Britain, France, Germany and Italy are pouring €2bn into microelectronics to help nurture European ventures in the “internet of things”. Battery manufacturing could be next. Meanwhile, the EU is set to spend €100bn on research and innovation from 2021 to 2027.

Competition policy cannot be set in stone. The EU will soon have to update its toolkit for the digital age, when access to data becomes essential to healthy competition across the economy. European car production might not survive longer term without it. Ms Vestager has started a review that will come up with proposals for the next commission due to take office at the end of the year.

But watering down competitive pressure to allow European champions to fend off Chinese industrial giants would be akin to cutting off Europe’s nose to spite its face. Other levers are needed here, such as full reciprocity in public procurement and more aggressive action against state subsidies. Reducing innovation and pushing up prices in Europe would be a gift to China’s state capitalists.


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