Tue. Jul 16th, 2019

European business giants collide with Brussels | Economy

European business giants collide with Brussels | Economy

Europe does not want to play in the fourth industrial revolution with pawns. In the era of commercial battles, the main economies of the continent are struggling to deploy towers, bishops and horses around the world that face the pieces that move the United States and China. France and Germany have stepped up pressure for the European Commission to favor the creation of European champions after their recent veto to the merger of Siemens and Alstom. Without going so far, another 17 countries have joined the Franco-German axis to urge Brussels to review competition policies and, above all, to draw a new road map for the reindustrialization of the continent.

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The big European companies have not done anything but step down in the last decade. Extended on a map, the rankings draw a world in which the United States and China house the headquarters of the largest corporations. This was confirmed last February by the Ministers of Economy of France, Bruno Le Maire, and Germany, Peter Altmaier. "Today, among the 40 largest companies in the world, only five are European," they concluded. Among the 20 companies with the highest value in the Stock Exchange of the world, the only representative of the European Union is the Anglo-Dutch Royal Dutch Shell.

In recent months, the urgency for European companies to gain in size has spread among most member countries. In January, 19 partners signed a joint statement in Paris stating that the EU must "build an industrial policy" that "encourages the creation of great economic players". Among others, they signed that document France, Germany, Italy and Spain. "Just as the great powers do not hesitate to defend their national champions, Europe must take into account in its competition policy the evolution of the global competitive environment in terms of investment, trade and industry," reads the text.

The statement came to light just a month before Brussels decided to block the merger between Alstom and Siemens, which had been set up since 2017 to create a group with a joint turnover of 15,300 million euros and 60,000 employees. The veto came despite pressures from Paris and Berlin. Le Maire came to call the decision "political error" even before it was formally adopted.

Diplomatic offensive

The Executives of Angela Merkel and Emmanuel Macron reacted immediately with an offensive to reform competition policy. In a joint manifesto, they went further than the rest of the member countries in proposing that the Council of the EU be given the ability to revoke a decision adopted by the community executive. Both countries not only share the concern of staying out of the big world league. According to diplomatic sources, they are also concerned about the movements of China in the continent through acquisitions of strategic infrastructures in southern and eastern Europe by companies with state capital or through programs such as the new Silk Road, with those who gain influence based on giving credits. The concern is evident in an extensive work carried out by the Federation of German Industrialists (BDI, for its acronym in German), dedicated to how to face from Europe an economy, the Chinese, controlled by the State.

The mistrust of the broad powers of competence of the European Commission goes a long way. At a conference in Cernobbio (Italy) in 2012, the then head of the area, Joaquín Almunia, had to review all the mergers approved to defend that the accusations that the community executive torpedoes the configuration of large conglomerates "do not correspond with the facts. " The same is forced to do the current curator, Margrethe VestageA: "In the last 10 years, the Commission has approved more than 3,000 mergers and has only blocked nine." Among the mergers to which it has given the green light, the integration of Basf and Solvay (2019), Essilor and Luxottica (2018) and Peugeot and Opel (2017) stands out. Brussels wants to open a debate on competition policy, but not on the direction that EU partners can revoke their resolutions. "Why would we want that?" He asks in an interview with a media group, including EL PAÍS. "Competition policy is a strategic decision of Europe. And if we want to change it, we have to be very aware of the consequences, "warns the commissioner.

Vestager, for the time being, has achieved backing of Spain, which has been unmarked of Paris and Berlin. The Minister of Economy, Nadia Calviño, supports the opening of a reflection on competition policy, but always that the goal is to "reinforce" it and not "weaken it".

David Bosco, director of the Institute of Commercial Law of the University of Aix-Marseille and specialist in competition, is in favor of Europe having larger companies to compete globally. However, he rejects the change proposed by France and Germany. "That means that the governments will negotiate mergers between European companies in the Council. You accept this and I am. We will lose our credibility globally. The policy must be kept out of merger analysis, "says Bosco. Also Xavier Vives, professor of Economics and Finance at IESE and a competition policy adviser for a decade in Brussels, calls for "preserving the independence" of Vestager. "Competition policy has been more restrictive in Europe than in the United States, but it would be very dangerous to renationalize it because, overall, it has been very positive. And in addition, has not been the obstacle to create large corporations, "he says.

The controversy that has provoked the Franco-German demand in Brussels, which represents a setback of three decades, has eclipsed the great battle that the EU partners have undertaken to relaunch industrial policy, especially in the face of the digital revolution. Today, of the 10 largest global corporations, seven are technological. Of these, five are located in the United States and two in China. None is European. "Europe not only needs European champions, but an industrial policy focused especially on areas such as R & D & I, the development of hubs and artificial intelligence," says Miguel Otero, principal investigator of the Elcano Royal Institute.

Last November, the EU Council adopted conclusions on a future industrial policy strategy of the European Union, in which it urged the Commission to draw up a long-term action plan for that area. Only a month later, came the declaration of that group of 19 countries to "the need for a reindustrialization of Europe." In addition to encouraging the creation of leading companies, countries emphasized the mobilization of all policies and departments of the community executive to reduce regulatory barriers. And there, according to the consulted analysts, they did find one of the keys that explains why new champions do not grow. "The problem is not one of competition, but of market fragmentation. Legislation must still be harmonized and national monopolies must be broken to give companies the scale they need, "says Otero. "The markets of the United States and China are fully integrated, while the European market is fragmented. But, in addition, we have fewer centers of excellence ", adds Xavier Vives.

Without a single market

Nicolas Véron, an economist at Bruegel and the Peterson Institute for International Economics, agrees with this diagnosis. "The main cause remains the absence of a real single market in the services sector, which prevents companies from reaching the critical size needed to compete with China and the United States," he says. Véron published for Bruegel in 2008 a study on the demography of the global champions. The markets were still dominated by the energy and financial sectors. However, already detected a trend that a decade later has been confirmed: in the US and Asia rankings were young companies linked to new technologies, while in Europe the old brands still dominated the markets. That is to say, there was hardly any renovation. "The discussion has only changed its tone: there is less talk about national champions and more about Europeans," says Véron.

The pressure to design a powerful common industrial strategy comes mainly from Germany, both from the Government and the employers. The Merkel Executive has recently presented its plans for the industry until 2030, which, by extension and by its subtitle, are also European. The document highlights the role of its champions, among which he cites Siemens, ThyssenKrupp, Deutsche Bank or the automotive sector, and proclaims that "size does matter". But Minister Peter Altmaier also devotes a section to exhort Brussels. "The European Union needs an industrial strategy", ditch. And this, in addition, must be based on the design of its main powers. Altmaier proposes, finally, a Council dedicated to the industry that brings together all the sectoral tables on competitiveness, telecommunications, commerce or energy. His first task will be to "reverse" the deindustrialization process in which, in his opinion, several countries entered after the Great Recession.

The European Commission, in fact, does have a European strategy, published in 2017. But the pressure from the member countries, especially from France and Germany, has not fallen on deaf ears and the executive presided by Jean-Claude Juncker has relaunched it this week. Community sources claim to be aware of what is at stake: 25% of the Union's gross added value (GVA), two thirds of its exports and 37 million jobs, of which 1.7 million have been created in the last five years The policy outlined by the European Commission, official sources explain, is based on five pillars: the single market, financing, the transition to green production, human capital and competition policy. "There is not a measure, but a combination of them to be able to create this industrial ecosystem", they add.

The Juncker executive wants to advance in the single market. It is not only about continuing to break down barriers so that companies can benefit from an economy with 500 million consumers, but also to prepare the playing field so that the parties develop on equal opportunities. And that, explain these sources, is to require reciprocity to third countries, to control the investments of these states or to stop foreign companies with state capital through public procurement procedures.

The EU is aware that one of its weaknesses is business financing. And there their companies start with a great disadvantage. From Asia, companies arrive to which public capital has been pumped, while the United States has a very diversified capital market. According to the Association for Financial Markets in Europe (AFME), 86% of companies in the EU still depend on bank financing. That proportion does not reach 65% in the US, where firms have access to the capital of a multitude of financial instruments, from venture capital funds to business angels. The EU strategy is to complete the Capital Markets Union, deploy investment plans, especially InvestEU, and adapt the competition rules in the case of sectors of European interest in which financial markets do not arrive.

The Commission also proposes a modernization of the industry focused on key sectors, such as robotics, the Internet of things or artificial intelligence. But official sources of the executive of Juncker explain that the great bet is the ecological transition. The department led by Miguel Arias Cañete has managed to complete the road map to involve all actors in the achievement of the Paris Agreements. The directives for the reduction of emissions from cars, vans and trucks, for example, must be translated into changes in the automobile industry. Some countries, such as the Netherlands or Sweden, even wanted to go further to accelerate this transformation, considering that Europe is now giving away a huge market - for example, electric batteries - to Asia by clinging to a production that in a few years could be outdated

Fear of protectionism

The consensus to give a hawk to industrial policy exists. However, some countries fear that some measures encouraged by France, Germany and the European Commission have an excessive defensive and protectionist character. He was alerted by Portugal's prime minister, the socialist António Costa, in the Financial Times. "One thing is to use the mechanism of investment scrutiny to protect strategic sectors and another is to open the door to protectionism," said the president of Portugal, one of the main recipients of Chinese investment. Community sources insist that they do not intend to close the way for anyone, but to promote "equal opportunities". "There are many more protectionists in China or the United States," recalls Vives.

The Franco-German machinery has been launched to find support for its reform plans, according to diplomatic sources. Miguel Otero points out that Spain should reject that the Council can impose its criterion on that of the Commission, but should not oppose the growth of European champions. Of course, he warns, they will not always have their headquarters in Spain. "In some sectors, our companies will be European champions; in others, it will be necessary to join others. And in others, we must focus on opportunities at the local level. " Surely the next community executive will be in charge of shaking the board to opt for a checkmate.

New standards for new environments

Not coincidentally, the European Commission has placed competition policy between the pillars of its latest document on its industrial strategy. "We want big companies that compete on the global scene. In almost 30 years, since the first rules on mergers came into force, we have approved more than 6,000 agreements and have blocked less than 30, "said the president of the community executive, Jean-Claude Juncker, last February. Those words were a message to appease the demands of France and Germany and at the same time an accolade to the Commissioner of Competition, Margrethe Vestager, one of the most popular faces of her cabinet after having stood up to Google, Apple or Amazon.

From the department of the Danish Commissioner believe that countries could make better use of the exceptions in which they can give state aid. It is, explains Vestager, to cover market failures. "In the case of projects of European interest, there is a tool to allow these contributions." The commissioner gives the example of a microelectronics project approved last December in which France, Germany, Italy and the United Kingdom contributed 1,750 million that allowed to unlock another 6,000 million for research.

Brussels already thinks of other programs in which the same rule may apply. On the radar there is already a plan by Germany, France and Poland to finance "next-generation batteries" for electric vehicles. Within this framework, the development of 5G could also enter, according to the commissioner. "This measure seems very important to us because we believe that there is full legitimacy to correct this type of market deficiencies and to remain a competitive market based on fair competition between companies," adds Vestager.

The curator, who defends that the current rules allow companies to be more competitive globally, is also working on how to address the challenge of companies that handle and store data. And he gives an example that he has studied in the field of agriculture, where the use of data contributes to the best use of machinery or pesticides. The problem is that not everyone has them. And that could suppose a brake to the competition. For the time being, Vestager has appointed a panel of experts who will have to decide what antitrust legislation could be applied in that case.

Lastly, the Commission has set itself the task of seeking, in European legislation, formulas to prevent unfair competition within the EU that involves the presence of companies that have received strong subsidies or are backed by public capital.


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