Competing with the United States and China has become one of the priorities of the European Union, which needs to get out of the “slow agony” in which it finds itself, in the words of the former president of the European Central Bank, Mario Draghi, who has been in charge to prepare a recipe book for the new European Commission. His main thesis is that an injection of investments of up to 800,000 million a year is needed to emerge from the lethargy, but the roadmap to improve the club’s competitiveness, which will be one of the main issues that the leaders will discuss in an informal meeting, will be next week in Budapest, he also points out other aspects, such as promoting companies and, above all, those in the sectors in which the game is now being played, such as technology, and in which the gap with the rest of the powers has narrowed. has been increasing in recent times.
“Europe’s future influence will depend on the performance and adaptability of its companies. Currently, European companies suffer from a staggeringly large deficit compared to their global competitors, mainly from the United States and China. This disparity penalizes us in numerous areas: innovation, productivity, job creation and, ultimately, the security of the EU itself,” says former Italian Prime Minister Enrico Letta, in a report commissioned by him, in this case , the president of the European Council, Charles Michel.
One of the problems, therefore, that the EU has is the size of its companies. 99% are small or micro-businesses, which employ 48% of the workers and represent 31% of the turnover. Medium-sized companies (between 50 and 249 employees) account for 0.8%, although they account for 15% of the workforce and 18% of income. Large companies are only 0.2% of the total, they employ 37%, but they represent more than half of the turnover (51%), according to Eurostat data corresponding to the year 2022.
“It is crucial to support large EU companies to grow and compete on the global stage. This can enable the diversification of supply chains, attract foreign investment, support innovation ecosystems and project a strong image of the EU. Ultimately, a prosperous economy supported by strong businesses puts the entire Union in a position to negotiate more favorable trade agreements, shape international rules and successfully confront unprecedented global crises and challenges,” reflects Letta.
According to the Forbes ranking, the first large European company (the French company TotalEnergies) is in 25th place in a list dominated by American and Chinese companies. In the ‘top 50’ there are only six from EU countries (Allianz, BNP Paribas, Santander, Volkswagen and LVMH).
Beyond the fact that size matters in an environment of fierce competition, the problem that the EU faces is what it dedicates its main efforts to. And the world has changed radically in recent decades. At the beginning of the 2000s, Europe did have ‘national champions’ among large global companies, such as Volkswagen (today in 48th place on the Forbes list), but now the game is not being played in sectors such as automobiles but in the field digital.
Only four European technology companies in the ‘top 50’
Only four of the 50 largest technology companies in the world are European, including the German multinational business management software company SAP, which has just dethroned the Dutch ASML, a semiconductor company that until now topped the European ranking of technology companies. “The EU’s global position in technology is deteriorating: from 2013 to 2023, its share of global technology income fell from 22% to 18%, while that of the US increased from 30% to 38%,” warns Draghi in your report.
“The technological events of the 21st century, where large American and Chinese technology companies have appeared, have left the EU behind, without ‘continental champions’ at least until now. Instead of those large operators, we Europeans walked with a very national vision of economic affairs,” Santiago Carbó Valverde, director of Financial Studies at Funcas, points out in an article, in which he gives as an example pan-European projects such as Airbus or Galileo.
When talking about promoting national or European ‘champions’, eyes quickly fall on those responsible for Competition at the European Commission, given the strict rules when authorizing business mergers or acquisitions that allow the size of companies to increase.
On everyone’s mind is the case of the acquisition of Alstom by Siemens, which the European Commission prohibited in 2019 under the premise that it threatened competition and made the market more expensive. The operation would have placed that company in the world leadership of the railway sector.
The battle of the competition rules
Paris and Berlin then began a battle against these rules. “The rules must be reviewed to take into account the challenges of industrial policy with the aim of allowing European companies to be competitive on the world stage,” stated at that time the Franco-German Manifesto for an industrial policy adapted to the 21st century. and that basically intended to limit the power of the European Commission in these decisions and give it to the capitals.
The vice president of Competition, the liberal Danish Margrethe Vestager, then stood firm and refused to relax the rules. One of their main arguments – and the detractors of that approach – is that large countries would always impose their will on small ones, generating a distortion in the community club. Vestager, of course, declared war on ‘big tech’, which she subjected to the strict control of competition rules as well as the new legislative framework of digital life with laws such as Digital Markets or Digital Services.
Now that the debate about the ‘European champions’ is back on the table given the need to relaunch industrial policy, the pressure falls on Teresa Ribera, who is the nominee for the Competition portfolio in the absence of the European Parliament giving her the approval of his candidacy. Precisely, his position on mergers and acquisitions is one of the main questions that the MEPs of the Economy Committee have asked him in the processing of written responses.
And, after the warnings from Draghi and Letta, the ‘mission letter’ in which Von der Leyen endorses his tasks to Ribera contains an allusion to the review of the guidelines on the evaluation of horizontal concentrations. “Europe needs a new approach to competition policy, one that is more supportive of companies expanding into global markets, that allows European businesses and consumers to reap the full benefits of effective competition, and that is better targeted to our customers.” common objectives, in particular decarbonization and the just transition,” says the president of the European Commission, who has also commissioned her to create a new framework for state aid.
In his response, Ribera advocates “evolving” the corporate merger control policy to “capture contemporary needs and dynamics such as globalization, digitalization, sustainability, innovation and resilience” while preventing “excessive accumulation.” of market power.”
The risks of the ‘national champions’
But the push for national or European ‘champions’ carries risks. In general, critics of this position consider that the lack of competition among large companies leaves them without incentives to improve on issues such as innovation or productivity.
“A policy of promoting national champions is harmful and ineffective,” says an article published by the think tank Brookings: “National champions are born from market consolidation, and concentrated markets mean higher prices for consumers and greater inequality in the overall market.”
“Industrial policy that reduces competition in an effort to direct more resources toward a single globally competitive firm ends up isolating that firm from the very market forces that would enable its success. A company given a monopoly on a national market will lack incentives not only to offer low prices, but also to innovate or improve efficiency. This lack of national pressure leaves national champions ill-prepared to compete in the global marketplace, let alone whether other countries will even allow these subsidized companies to operate in their markets,” note authors Bill Baer and Jack Malamud.
That is why the EU is trying to diversify the response it gives to its competitiveness crisis. In addition to boosting the size of companies or reforming the state aid regime, the European Commission’s commitment is to simplify processes to eliminate obstacles for European companies.
“30 years after the single market, our economic union is far from complete. Our competitors have economies with markets and state budgets the size of continents. A California startup can expand and raise money throughout the United States. But our companies still face too many national barriers that make it difficult to work across Europe, and too much regulatory burden,” Von der Leyen acknowledged in a speech this week.
“While 300 billion euros of European households invest each year in foreign markets, we continue to have fragmented capital markets,” added the president of the European Commission, who reiterated the commitment to move towards the Capital Markets Union. that the EU is being choked by the reluctance of some countries, such as Holland or the German liberals, due to the distrust in the banks of some European partners, and also by the rejection of others, such as Luxembourg, Ireland or the Baltics, among others, to centralize banking supervision. To promote joint investments, Spain has proposed “pilot projects” in which several member states can participate. In Brussels the music sounds good while we look for ways to not be left behind.
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