Competition Policy enforcement as a driver for growth
Joaquín Almunia, European Commissioner for Competition, shares with you some general views on competition policy.
Bruegel workshop, Brussels 18/2/2014
Ladies and Gentlemen:
Today I would like to share with you some general views on competition policy. I have been in charge of competition policy at the Commission since February 2010, but many important cases and discussions seem to have come our way in the past few months. I wonder why European Commissioners for competition tend to face their most complex issues in the closing months of their mandates. Maybe this is a question for the next Bruegel seminar on competition matters. As I wait for it, let me tell you how I see competition policy in the present, crucial stage for Europe.
Competition policy and the crisis
First of all, I would like to look at the nexus between competition policy and the crisis. Thanks to the special State aid framework that was introduced between the autumn of 2008 and the first months of 2009, competition policy has been heavily involved in the rescue, restructuring or resolution of many banks in distress since the beginning of the crisis.
The European Commission has constantly adapted its temporary state aid rules for assessing public support to financial institutions to adapt to the evolution of the crisis. The last changes were introduced in the summer of 2013 when we produced new rescue and restructuring guidelines for financial firms. These new guidelines will allow the Commission to assure the continuity of its control during the transitions to the new European Parliament and Commission and until the components of the Banking Union become operational.
Talking about the Banking Union, let me add a comment on how the Single Resolution Mechanism – a core component – is taking shape in the on-going discussions involving the Council and the European Parliament. I hope a good solution will be found before the Parliament closes its doors for the elections in a few weeks’ time. This is crucial, because the Single Resolution Mechanism must be in place to deal with the possible consequences of the asset quality review and the stress test planned by the ECB for the current year. However, it is possible that the tight deadline will eventually produce an imperfect outcome – which would be just as bad as no decision at all. Time will tell. For the moment, I just wanted to draw your attention to a vital issue that needs to find a solution which is both adequate and timely.
The main response to this long crisis has been the State aid modernization strategy launched almost two years ago, in May 2012. The modernization strategy is a response not only to the tangible impact of the crisis – including on EU national budgets – but also to its perception among the population. If everything goes according to plan, all the instruments, guidelines and frameworks will be in place before the summer break – and that will produce a robust, future-proof set of criteria for the enforcement of EU State aid rules.
The most complex issues still on the table are some aspects of the energy and environmental guidelines, which I hope will be adopted in April so that they can come into force on July 1st. The guidelines on Research, Development and Innovation are also quite important. Fortunately, they have not raised as difficult a debate. These guidelines too are close to finalisation, we are working hard on them so that State aid can be used efficiently to support innovation and R&D across Europe.
I will now turn to antitrust. The area in antitrust that has been most affected by the crisis is that of cartels. We have seen some cases in the past few years that can be defined as defensive cartels, in which companies break the law to shield themselves from the difficulties they face in a crisis environment.
But I would like to focus on a totally different kind of behaviour; on cartels that are not a consequence of the crisis, but that remind us – at least in part – of its origin. I am referring to our investigations into the manipulation of financial benchmarks. In December 2013 we adopted a settlement decision against eight financial institutions that had colluded to manipulate interest-rates benchmarks in two cases related to the so-called LIBOR scandal. The investigation continues with one broker and three banks that chose not to settle. In another case, still at a preliminary stage, we are looking into the possible collusion to manipulate other financial benchmarks related to oil products and derivatives.
Cases like these can help us understand what needs to radically change in the way the financial system works – and our investigations reveal in great detail the problems that need to be fixed. We have learnt many lessons during this crisis. One of them – which I hope nobody will dispute – is the need for more stringent regulation and new ethical standards in the financial services sector.
I see these changes as vital, urgent and wide-ranging. They involve the way financial activities are regulated and supervised. They also involve the way the main players in these markets operate. Financial institutions cannot think of themselves as being above the law. They must be subject to the same standards as non-financial companies and they should respond to the same calls for social responsibility. Banks and other financial institutions should adopt robust compliance programmes. Companies should make it perfectly clear to their staff and other personnel which business practices are admissible and which will not be tolerated. In my view, a change of culture in the financial industry is of the essence, and this regards both regulation and self-discipline.
Competition policy and the Single Market
The next point I would like to make today is about the interplay between competition policy and the Single Market. The Single Market has been one of the main objectives of competition policy since the very beginning and this traditional goal has become even more pressing during the crisis. These four years as Commissioner for competition have taught me which are the sectors where building a genuine Single Market is most urgent. Apart from the financial sector I have just mentioned and the services sector, I believe that completing the internal market in energy markets and in the telecommunications industry should be a priority of the EU.
The European Commission is actively working on the energy sector in several ways. Looking at the link with climate change and environmental policies, we recently put forward new ideas for the next decade. In the course of the negotiations for the EU budget – the so-called Multiannual Financial Framework – we discussed how to use the new Connecting Europe Facility to fund cross-border transport, energy and digital infrastructure projects. But this cannot be a public-sector strategy only. Everyone agrees that a dialogue must be established with the private sector to generate the fresh investments required to improve our interconnections and the quality of our electricity and gas networks.
From the competition policy point of view, we have several pending antitrust cases that may have an impact not only on the competition conditions in the Single Market, but on the very integrity of the Single Market. The Gazprom case is one of them, with the clauses in long-term contracts that risk partitioning the internal market. There are other on-going antitrust cases involving power exchanges where we may find infringements that will have to be sanctioned.
And, of course, any debate on Europe’s energy policy must include the issue of renewables. The approach first adopted by the EU was increasing the share of renewable sources of energy to 20 percent of the energy mix from 2020 with national targets which – in an initial phase – were probably necessary.
However, we now see that national targets and the public funds required to comply with them have had the unintended effect of increasing the fragmentation in the internal market. This, together with higher thresholds for renewables, may eventually result in an inconsistent mix of policy instruments. So we need to discuss these issues very carefully, and this is what we are doing at present in the context of the review of the State aid guidelines for energy and the environment I mentioned earlier.
The debate should never lose sight of the need to create the best conditions to help Europe’s companies become more competitive. We have to find a common response that balances the fight against climate change, the promotion of renewable and clean sources of energy, and the protection of our commercial and industrial interests.
At a time marked by the shale-gas revolution, Europe’s companies are vying with international competitors whose energy bills are about 50 percent cheaper – and much more than that when it comes to gas. So this is a real challenge for us and we are trying to address it in the new guidelines. But it is clear that what the EU needs is a concerted effort that goes much beyond competition policy, such as a determined push to complete the Single Market for energy. I would very much like to see a serious debate around this issue, but unfortunately we are not there yet.
Moving on to the digital economy, the first remark to make is that – in many respects – we don’t have a Single Market for the digital and telecommunication industries in Europe yet. In particular – since we are discussing two important mergers in the telecom sector at present – I have a lively conversation on the implications of this state of affairs with Europe’s largest telecom operators.
There is no denying that these companies are global players, but in Europe they operate in distinct national markets. So, we are looking at a contradiction. If they want to become global players and negotiate on content with the so-called over-the-top players from a good bargaining position, they need to grow bigger. However, they cannot scale up if they continue to operate in purely national markets. Such a strategy would imply higher rates and services of inferior quality for the users – and protecting the users’ interests is our top concern. A competition authority is accountable to the users and consumers. It is not accountable to any one company, no matter how big.
Competition policy versus populism
Ladies and Gentlemen:
I would like to close with a look at the broader political implications of competition policy. We can call this part of my presentation “competition policy versus populism”. We are in an electoral year, and many candidates for the next European Parliament are also keeping an eye on the domestic impact of these elections. The risk is that populist movements will ride anti-European sentiments and use any electoral success in May to make political gains in their respective countries. I hope the results will eventually prove these dire predictions wrong, but the possibility is there. And if it does materialise, protectionism, populism and demagogy will create additional tensions both in Brussels and in Europe’s capitals.
Competition policy can be a good antidote against populists, demagogues, nationalists and protectionists of this kind. I believe that all competition authorities in the EU are committed pro-Europeans – it’s in the very nature of our work. We need to come together and explain to the people what competition policy is about; how it boosts growth; how it benefits SMEs and ordinary consumers.
We need to find better ways to explain how bad populism can be; how it is absolutely logical for pro-Europeans to fight against protectionism in all its guises and therefore defend the role of the Commission as the body entrusted with the defence of the common interest. This is why the founding fathers of Europe gave exclusive competences to the Commission. In particular, this is why the EU is the only jurisdiction in the world with State aid control.
One of the arguments bandied around in the populist camp against competition policy is the need for what they call “industrial policy”. The argument is spurious, of course, but those who follow this debate know well that even inconsistent arguments can sometimes be persuasive. So, we have no option but to respond.
Europe needs a common industrial policy – there is no doubt about that – but it must be a modern one! The industrial policy we need, one that can produce useful outcomes in the 21st century, must be very different indeed from the policies we have implemented in the 1970s as a reaction to the oil crisis – governments picking winners and all that. We all remember the awful results of that experience. So, let us discuss about industrial policy and better conditions for doing business in Europe – starting with leveraging the internal market – because the need to reinforce the competitiveness of our economies is obvious. But, as we do so, let us not forget for a moment that it would be utterly foolish to repeat the mistakes of the past.
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