France and Germany have jointly proposed that EU merger control rules should be relaxed in favour of mergers among large European companies to allow the creation of so-called “European Champions”. The triggering event behind the political initiative was the decision by the European Commission to block the merger between Siemens (German corporation) and Alstom (French corporation).
The Franco-German proposal has drawn a great deal of critique from competition authorities, academics and practitioners. At the recent Competitiveness Council meeting, ministers from the Nordic countries also spoke against the proposal.
The European merger control regime is based on hard-won principles of consumer welfare, transparency and legal certainty. It provides European consumers with lower prices and better products. The proposed amendments would – on the contrary – subject merger control to the uncertainties of political decision-making. In departing from the above-mentioned principles, the proposal could damage the credibility of competition enforcement in Europe and undermine the cornerstones of a well-functioning single market where companies of all sizes can develop and thrive.
Relaxing merger control in line with the proposal would come at the cost of weakened competition within the European as well as the domestic markets. Under the current system, competition on a European and a domestic level spurs each firm to become more efficient and to develop better products. Those that succeed best will in the long run also prosper in global markets. Competition, not politics, should identify the winners among European firms. Competition between domestic firms is also crucial for success in the domestic market, which in turn can help the best qualified domestic firms to succeed in global markets.
The proposal to change European merger control rules would benefit but a few large European companies and be especially detrimental to Member States with smaller domestic markets. This holds true also for the Nordic countries, where many markets are already concentrated.
One of the main arguments of the supporters of the political initiative to weaken European merger control is that the present regime is excessively intrusive. This is clearly not true. An overwhelming majority of mergers is cleared very swiftly. Even in cases where competition authorities do intervene, most of the mergers are approved subject to conditions that address the competition concerns. Merger rules do not stand in the way of creating European Champions through mergers. Such mergers will be allowed if they also give rise to synergies – including economies of scale and scope – that will offset the negative impact of increased concentration on consumer welfare. Alternatively, the parties may introduce corrective measures that remove the competition concerns and allow the merger to be cleared conditionally.
As stated in an open letter by more than 40 European industrial economists, “Europe needs more efficient, competitive, and innovative firms. Sponsoring mergers which remove competition would achieve the opposite”. The Nordic competition authorities fully support strong and politically independent merger supervision at the EU level, as well as at the national level. The merger control system should be seen as a stimulus, not an impediment, to a successful industrial policy.