international analysis and commentary

The imperative of global competitiveness and the EU’s internal market

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The future of Europe runs on rails. Or at least it seems so these days. The EU Green Deal and the ambition of a zero-emissions economy echo ideas of efficient night train services and high-speed rails being upgraded, partly as a result of growing attention to the climate impacts of flying.

Yet, just a year ago, a major economic deal between Germany’s Siemens and France’s Alstom that would have changed the face of Europe’s infrastructure sector was blocked by the European Commission. It would have created a dominant player significantly reducing competition in the area, the EU antitrust boss Margrethe Vestager argued at the time. As seen by its advocates, however, the Franco-German deal was meant to forge what many in Europe are craving: a continental industrial heavyweight, a corporate giant for the rail sector, able to take on global competitors.

The High-speed rail operators map shows how the EU railway network is far from having a main player

 

The EU competition watchdog has also recently opened an in-depth investigation to assess Italy’s Fincantieri’s proposed acquisition of France’s Chantiers de l’Atlantique (formerly, Stx-France) at Saint-Nazaire, one of its two largest competitors in Europe, under the EU Merger Regulation. A decision is due in a few weeks time. The transaction may indeed reduce competition in the global cruise shipbuilding market, pushing prices up. A consolidation of the European sector, however, would be key to boost competitiveness in view of global competitors, once again most notably China.

The 2019 Commission decision was met with criticism in various capitals; notably Berlin and Paris. Shortly after it was published, the economic ministries in both countries authored a joint manifesto denouncing that out of the 40 biggest companies in the world, only five are Europeans and that a new industrial vision for Europe was urgently needed.

While some consensus against the decision was reached across the political spectrum, from German conservatives to French socialists, the Alstom-Siemens case somehow also contributed to growing discontent in the then soon-to-be-formed centrist-liberal family in the European Parliament, which was eyeing the elections scheduled for a few months later. The move by Vestager left tangible disappointment in Emmanuel Macron, creating an ideological rift between the French and the Dane, which is reported to endure to this day. This is despite increased collaboration, with the competition tsar tasked with overseeing the huge portfolio of Frenchman Thierry Breton, the Commissioner for Internal Market who has announced a comprehensive EU industrial strategy as the first draft proposal of his term in office.

The background to the case that stopped the EU from having an Airbus of the railways is quite straightforward. Despite Europe’s best effort, in the weakening rule-based international order there is no regulatory playing field. This puts European companies – by far mostly small and medium-sized enterprises (SMEs) – at a massive disadvantage vis-à-vis global players from (namely, but not only) China and the US. Even so, the Commission has been firmly convinced that a fairer competitiveness in the global arena cannot come at the expense of a healthy competitive environment at home, where consumer protection is at stake.

The emergence of giant companies of the stature needed to compete on the world stage outside Europe is often exemplified by the merger that the Chinese CNR Group and the CSR Group completed in 2015 to form the state-backed CRRC Corporation Limited, accounting for a 30% share of the global rail market, given its monopoly in China and the policies by the government in Beijing to stimulate local production and strengthen the country’s position as a manufacturing superpower. It is worth remembering that slightly less than one year ago, Italy was on its European allies’ radars for being the first big EU country – through a Memorandum of Understanding – to sign up to China’s New Silk Road, the paramount One Belt, One Road (OBOR) infrastructure initiative to improve Asia-Europe trade networks and shape Beijing’s new geopolitical posture, supported by massive direct investments.

“It will take a very long time before” Chinese suppliers “can become credible suppliers for European infrastructure managers”, the Commission stated in its decision on Alstom-Siemens. Stakeholders from the sector are not yet persuaded, as they call for a clear rulebook to regulate foreign direct investments in Europe’s strategic assets (from telecommunications to digitization), on the one hand, and for a revamp of the EU’s merger regulation to facilitate the creation of European champions, on the other. Such a scenario would be favored by vast majority of European political families, with even some far-right nationalists acknowledging the need of a continental scale to compete with world giants.

The French railway manufacturer Alstom is nonetheless trying hard again to strike a deal that would put it on track to become the world’s number two rail operator. These very days, for instance, it has announced a new memorandum of understanding to buy the railway branch of Canada’s Bombardier, which is currently experiencing financial troubles. The merger would require a new decision by the European Commission’s competition authority.

Many are indeed vocal about the need to reconcile the two elephants in the room: competition law, on the one hand, and an ambitious industrial vision for Europe, on the other. Just recently, a few days after the UK’s withdrawal from the EU, four of the bloc’s most influential member states – Germany and France again, in a joint effort together with Italy and Poland – have called on Vestager to accelerate the long-needed reform of competition norms and to better fine-tune competition rules, merger control and state aid rules with an overall industrial strategy for the EU27. Such a request would not entail cumbersome institutional changes, requiring unanimity among member states, at a time when a reform to the Treaty can be tricky and politically slippery. The political goal to scale up Europe’s SME-driven economy towards enabling European champions is rather clear, but it would nonetheless require a higher degree of integration of European markets – which has historically been slowed by national capitals rather than EU bureaucrats.

Then, one might still argue that a likely future European champion should nonetheless be authorized to compete outside Europe: back in 2001, for example, the European Commission vetoed the proposed acquisition by General Electric of another large US company, Honeywell, despite it having already been approved by US regulators. The veto implied that the merged company would not have been allowed to sell its products in the EU market: the merger would have reduced competition in the aerospace industry and resulted, ultimately, in higher prices for customers, the Commission argued at the time.

This is why internal shifts of paradigm in the EU and a re-equilibrium of competition and industrial policies must be complemented with a clear view on how to abide by a few, common rules globally.

Having European strategic operators in key infrastructural, digital and industrial assets for the future of the continent would go hand in hand with the political priority of regaining an authentic European sovereignty in a changing and multipolar world, the only dimension where European nations can still defend their national interests and claim political leverage and global influence.

Will the new “geopolitical Commission” led by Ursula von der Leyen step up to this global challenge and review its stance on the subject?

These days, Europe claims to be looking for its soul, after the Brexit shock, as well as to re-engage its peoples – as it plans to do with the conference on the future of the EU. European industrial, infrastructural and digital big players of truly integrated sectors could jump in and help in building a common European narrative and concretely and strategically communicate about a united and connected bloc, beyond national jealousies and valuing national diversities.

However, reconnecting with the soul of the European vision is not enough, if you do not train wide shoulders to carry the weight of this one-of-a-kind political project amidst turbulent times of international uncertainty.