Brookings - Europe needs competition, not national champions

Open Markets’ Europe director Max von Thun’s recent article in ProMarket was cited in The Brookings Institute, which dismissed the notion of creating European champions.

Brookings writes, “Von Thun used the United States as an example of the harms of consolidation in the defense and telecommunications sectors specifically and argued that, beyond high prices, consolidation causes harms in the form of weaker resilience, less innovation, and reduced investment.”

In recent years, European leaders have increasingly debated whether competition enforcement should give way to industrial policy. A growing number of politicians argue that Europe should favor creating European “national champions” over enforcing the European Union’s (EU) competition laws. This, they say, is the only way to reinvigorate the European economy and challenge American and Chinese behemoths on the world stage. Experience and industrial organization economics teach that this is a questionable premise. But that seems not to deter its proponents.

While national champion policy advocates—not just in Europe but also in the U.S., Japan, and China—have been around for a long time, 2019 saw new momentum after the European Commission (EC) blocked a proposed merger between Europe’s two leading railcar and train signaling systems manufacturers—France’s Alstom and Germany’s Siemens. The decision to block should have surprised no one: The combined firm would have dominated the market in Europe, the U.S., and much of the rest of the world.

But not everyone agreed. That year, Peter Altmaier, then-Minister for Economic Affairs and Energy of Germany, unveiled a new national industrial strategy for Germany that included calls for Europe as a whole to prioritize the formation and protection of European national champions to compete with China and the United States. Around the same time, President Emmanuel Macron of France pledged “to recreate competition policy to avoid the mistake of the Siemens-Alstom prohibition.” Macron followed up by nominating as an EC commissioner Thierry Breton who previously called for “a true industrial policy at EU level,” which he contrasted with a status quo of “competition policy imposing its will.”

The argument today is that Europe faces a “competitiveness crisis” relative to the U.S. and China. Europe’s shrinking share of the global economy and its lagging public and private investments, income, and productivity growth as compared to the United States have fueled this crisis and convinced some in Europe of the need for radical change. Current and former European leaders—particularly from France, Germany, and Italy— continue to call to for relaxed limits on mergers and state aid to promote consolidation in some sectors and create “European champions”—large companies that could more effectively compete with American behemoths. In 2022, Bruno Le Maire and Robert Habeck—the economic ministers of France and Germany, respectively—called for an increase in industry subsidies through state aid programs, a cause that Thierry Breton also championed in his role as European commissioner.

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