Competition and EU policy-making

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1 EUROPEAN COMMISSION Joaquín Almunia Vice President of the European Commission responsible for Competition Policy Competition and EU policy-making Minda de Gunzburg Center for European Studies Harvard University, 26 September 2013 SPEECH/13/757

2 Professor Ekiert, Professors, Dear students, Ladies and Gentlemen: I thank Professor Ekiert for inviting me to bring my contribution to the Director s series of Harvard University s Center for European Studies. It is a real pleasure and an honour for me to address such a distinguished audience at the oldest institution of higher education in the United States. While I was preparing for my presentation today I thought that this would be a very good time for a European Commissioner to meet an American audience. As you know, the first round of negotiations for the Transatlantic Trade and Investment Partnership or TTIP took place in Washington DC last July, and the talks will continue in Brussels in a couple of weeks time. These are negotiations of paramount importance, because they can boost the economic links between the US and the European Union and also because of the political implications of a common approach for our two markets, which together represent about half of the world s GDP. The talks come at a very opportune moment, too. Strengthening the cooperation between the EU and the US will certainly sustain the signs of recovery that we are observing after years of crisis and uncertainty in the global economy. I hope that the new agreements will be far reaching and ambitious. Apart from improving trade and investment conditions across the Atlantic, the EU and the US have a golden opportunity to remove not only tariff barriers, but also other kinds of barriers which I regard as even more harmful such as non-tariff barriers, the obstacles erected by vested interests, and the incessant siren calls of protectionism. We will talk about trade in goods and services, as well as investment flows across the Atlantic. Our success will bring new opportunities to citizens and businesses and build a strong momentum for growth and jobs. On top of this, thanks to the negotiations, the EU and the US can lead by example. They can influence the path towards a multipolar world without a single dominant player. We cannot miss the opportunity to send a clear message for fair, open and well regulated markets. Keeping markets a level playing field for consumers, users and businesses is the ultimate goal of competition authorities around the world. This is my job in the European Commission. I want to explain here what we are doing and why we are working hard in this domain. After the very serious consequences brought by the near-collapse of unregulated financial markets five years ago and in the landscape that is emerging from the crisis, we need to find a new mix for three basic ingredients: free markets, financial regulation and supervision, and the robust enforcement of competition rules. That markets need rules to fulfil their role efficiently is an old American discovery. Indeed, all of competition policy can be traced back to the Sherman Antitrust Act passed at the end of the 19 th century. It took over sixty years for competition policy to cross the Atlantic, and when it did it was part of the effort to build an institutional framework for a united Europe. 2

3 Six decades ago, the founding fathers of European integration included in the original Treaty two basic principles for our historic project: First, that the peoples and the countries of Europe could not be united without a common market; and Second, that a common market could not be born and would not survive without a central and independent competition authority. Individual competition policies would exist in many if not all the countries of Europe even without the internal market. Actually, Germany had already taken that route before the Treaty of Rome was signed in But because we have the internal market, the implementation of competition law is among the very few federal-like policies we have in the EU, one in which the European Commission has almost exclusive power. Also, because our businesses compete at EU level in our internal market, EU competition policy includes the centralised control of State aid. Under the Treaty s State aid provisions, the European Commission must make sure that the level playing field is not compromised by Member States subsidising their respective domestic players. The Commission can accept public subsidies in the economy if the objective they fulfil at EU level offsets the distortion of competition they cause. For instance, we clear subsidies to hospitals under EU-wide conditions because they are part of Europe s public services. The competition articles in the EU Treaty for all our instruments have remained the same since 1957 and this can give you a measure of the vision of those who drafted it but, of course, competition policy has evolved in pace with ever changing conditions in the markets. However, at every step of the process, we confirmed the insights of our founding fathers about the European dimension as an essential condition in this area. For instance, when the review of mergers was added to EU competition policy in 1989, implementation continued to be reserved to the Commission. Later, in 2004, our core antitrust control was reformed to fix problems that had emerged in its implementation and to prepare for the entry of ten new countries into the EU. As a result of this reform, national competition authorities and the national courts in the Member States implement the same EU Treaty articles together with the European Commission. I think of this reform as the time when Europe s competition policy came of age. Ten years later, the new system keeps producing excellent results. Ladies and Gentlemen: After this brief historical overview, now I would like to fast-forward to the present to highlight the main challenges for competition policy. The first aspect I would like to stress is the growing need for international cooperation. This is in line with my previous call for closer ties between the EU and the US. But I would like to make a stronger point when it comes to cooperation among competition authorities. 3

4 As world economies continue to integrate, longer and more complex value chains encircle the entire globe, and a growing number of companies have operations in several regions and continents. In this business environment, it would be unreasonable for competition authorities to keep operating behind national or as we do in Europe regional borders. We are conscious of this evolution and have responded to it. Cooperation among competition authorities has expanded in the last decade. We all are aware of the need to join forces to fight protectionism and foster open and level markets worldwide. Over one hundred agencies are now associated in the International Competition Network, where we support each other, exchange best practices, and work for the convergence of our rules and their application. In addition, the major agencies exchange information and actually coordinate their action on cases of common interest on a daily basis. Also the OECD serves us as a very useful platform for that purpose. But, indeed, the fight against protectionism starts at home. Over the past years in particular since the outbreak of the crisis I ve often heard calls that competition enforcement in the EU should be softer. Several reasons are given. Some claim that we need to help companies weather the crisis; others that we need to help them withstand the pressure that comes from abroad, especially from the emerging economic giants. In particular, some voices call for a policy that favours the growth of the so-called national champions especially asking us to go easy on mergers and the phrase industrial policy is sometimes used as antagonistic to competition. I reject these calls with great force. Europe does need an industrial policy everyone knows that but it needs a modern one; consistent with competition policy, not in contradiction with it. And one that would avoid the mistakes made forty years ago. We cannot bring back from the grave the strategy of picking winners that European governments embraced in the 1970s. Those policies turned out to be a waste of taxpayers money and helped to undermine our competitiveness. Instead, regardless of the sectors in which companies operate, we must create the conditions for them to do business in every corner of the Union without barriers or restrictions. We must foster innovation. We must promote stronger resilience and higher productivity levels in our economy. Only a well-regulated market on European scale will help companies with EU operations to become stronger, more efficient, and more innovative. Only a Europe-wide marketplace can allow companies to become European champions and reach the size they need to take on their global competitors. The third aspect of our current work at the European Commission that I will highlight today goes back to the origins of competition policy in Europe: extending and reinforcing the Single Market. Here I will give you two examples: the telecommunications market and the market for energy. The challenge in Europe is to build a genuine internal market in these industries while keeping them competitive. 4

5 Obviously the history is different here in the US, where the same goal of keeping markets a level playing field is pursued through different means. Telecommunications and energy markets have been the focus of liberalisation efforts by European and national legislators, but the impact of these measures on the ground takes longer than expected. Competition enforcement can help to step up this process. To help translate the regulatory efforts into tangible benefits for European consumers, we have taken a number of decisions against old telecom monopolists trying to hold on to their market positions after liberalisation. We have had cases involving incumbents in Germany, Spain, and Poland and we have more cases like these in the pipeline. The same goes for the energy sector, where our action has tried to open up markets to effective competition in Belgium, Germany, France and Italy. Our decisions are not limited to old incumbents, of course. For instance, the current wave of consolidation in mobile telephony is keeping us quite busy and we will have to review among other cases the proposed acquisition of O2 Ireland by H3G and of KPN s business in Germany by Telefónica. Among our other ongoing investigations in the energy markets, let me mention a case involving the operations of electricity spot exchanges in Western Europe. We are also investigating the Russian gas giant Gazprom. One of the issues we are looking into here is whether the company has partitioned some EU markets along national lines. As a matter of fact, we are trying to respond to the need for a genuine European approach on energy using all the tools in our competition-policy box. State aid policy is one of these tools, perhaps less known outside Europe. Different guidelines set out the EU-wide criteria we follow to evaluate individual cases. For instance, last June we adopted new rules for the subsidies that further regional development. One set of rules we are reviewing at present are the guidelines for Environmental aid. But since environmental and energy issues are closely intertwined today, I intend to extend the scope of the new guidelines to include the public financing of energy projects. To help Europe regain competitiveness and maintain the lead it has in decarbonisation, the new Energy and Environmental Guidelines should aim at encouraging governments to focus public expenses on generation adequacy encouraging more efficient renewables cross-border infrastructure, and energy efficiency. The intention of some EU countries to support nuclear-energy generation is another issue we will discuss. In particular, we'll need to decide whether our State aid guidelines will specify general EU-wide criteria under which the compatibility of subsidies to some parts of nuclear generation will be assessed, or whether, on the contrary, we will carry out our analyses on a case-by-case basis, directly under the EU Treaty. In the EU it is up to Member States to decide whether or not to use nuclear power in their energy mix. But in case they propose to give public support to this source of energy, we need to assess the compatibility or not of this proposal with our State aid rules. When a Member State makes the choice to promote a particular source of energy, our responsibility is to make sure that subsidies to national businesses respond to a real market failure and do not give an undue advantage to one energy provider over the others. 5

6 But it is not our role to prevent Member States from supporting nuclear energy rather than other energy sources, or to encourage them to do so. We will remain neutral in this respect. The guidelines would not make it easier for Member States to subsidise nuclear energy compared to the present situation. These new guidelines, together with many others recently adopted or still under discussion right now, are part of our State aid modernisation strategy, which I launched last year and is now well under way. This initiative is a good example of how competition policy responds to new challenges and conditions. Since the beginning of the crisis, many EU countries have lost part of their growth potential, and at the same time, they ve had to consolidate their public budgets just as the demands to stimulate an economy in recession mounted. To help the EU members manage this difficult situation, we have launched this strategy to boost growth and competitiveness across the EU in line with its overall strategy for growth and jobs. The strategy is also designed to help Europe s governments use public resources in a way that is compatible with their consolidation efforts. Let me conclude. Over the past few years, we have tried to raise competition policy to a level that integrates it into the other policies deployed by the EU to stimulate growth across the continent. To do that, we have resisted all attempts to regard competition policy mainly as a passive tool; one that is employed only in response to a threat to competitive conditions in a given sector and to the integrity of the Single Market. Instead, we have been active in supporting broader EU policy efforts such as in the financial sector, telecoms and energy and even in preparing the ground for them. This is because we do not assess our cases or take our decisions in a vacuum. Like any other public policy, competition policy must take into account the economic and social conditions in which we operate. We cannot ignore the implications of our action, because competition policy is a powerful tool in EU policymaking. It helps to leverage the potential of the Single Market; it can create better conditions for business; and it can give a real boost to growth and innovation in Europe. In the circumstances that have been prevalent across the continent over the past five years or so, we simply have to enlist all the policies of the EU to mitigate the impact of the crisis; address its root causes; and pave the way for the recovery. Thank you. 6

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