Mario Draghi faces the EU’s merger police

Guidelines that allow companies to collaborate with investment rivals. A regime to control potentially worrisome mergers after they are approved, rather than before. New principles to check EU-wide corporate links instead of reviewing market power at national level.

Of all the 400 pages of Mario Draghi’s report on European competitiveness, the recommendations aimed at the EU’s antitrust division – long seen as the vanguard of Brussels regulation – are some of the most radical.

If the approach were to be adopted, the former European Central Bank governor was clear about the potential outcome: the green light for deals such as the mega train merger between France’s Alstom and Germany’s Siemens, which was blocked by Brussels in 2019.

Draghi’s overall message to Brussels is unforgiving. Europe’s competition authorities, driven by a relentless focus on consumer prices, were out of step with a global digital economy where companies need scale to compete and innovate.

“The question is whether vigorous competition policy conflicts with European companies’ need for sufficient scale to compete with Chinese and American superstar companies,” Draghi’s report concludes.

Its remedies – which, in effect, reinterpret the way competition rules are applied – are to provide more scope for deal-making and collaboration, and to address problems as they arise.

“Competition should be more forward-looking than prudential,” he told reporters on Monday.

In terms of mergers, this would represent the biggest changes to the EU’s competition regime since the birth of Europe’s single market in the 1990s.

Unlike Draghi’s other ambitious proposals in the report, the fundamental rethinking of competition enforcement is certainly in line with the political mood in Brussels. Ursula von der Leyen, the European Commission president who requested Draghi’s report, called in July for a “new approach” to competition that would “more support companies expanding into global markets.”

Margrethe Vestager, the EU’s competition chief, also highlighted big changes on the horizon. “A deep update of European competition rules is underway,” she said last week.

Any serious revision would face a major political backlash. Signs that the Commission is deviating from the traditional approach have already alarmed some EU officials and smaller countries, who fear that talk of “European champions” is just a cover to allow for greater consolidation that would raise prices and reduce incentives for investments.

“It’s crazy,” said a senior EU official closely involved in competition policy.

“The new competition commissioner will be under huge pressure to inject doses of industrial policy into competition policy,” they said. “It is a weakening of competition policy towards the big industrial interests in Europe.”

Draghi argues that his goals can be achieved without rewriting the EU’s core competition objectives, merger control regulations or indeed state aid rules. The key reform would be to change the commission’s own internal guidance on how these rules are applied so that they are “fit for purpose”.

An example would be to make innovation – and the development of new technologies – a more important factor in assessing whether large concentrations of market power can be tolerated.

To prevent abuse of this agreement defense, Draghi proposes requiring companies to commit to investment levels that can be monitored in the years after the merger is approved. The Commission could, for example, require companies to report figures on prices or investments that could be challenged if they show an abuse of market power.

“You allow a merger and see if it has a chance to translate after a while into something that is anti-consumer,” Draghi said on Monday.

He also suggests that the commission, in markets such as telecoms, should assess whether a proposed merger stifles competition at EU level, even if the markets are mainly national.

A merged telecommunications group, for example, could hold a near-monopoly position in Austria or Denmark as long as their market share in the entire single market is less than 40%, the basic rule for blocking mergers.

Finally, Draghi proposes taking a more relaxed approach to collaboration between executives of rival corporations, which is generally prohibited if it distorts competition. Draghi argues that there are cases where coordination is needed to maximize investment in research and development or to standardize technology.

“There is a need for a simple, streamlined process that EU industry groups can follow to work together to achieve scale when it would benefit consumers,” the report said.

Fiona Scott Morton, senior fellow at the Bruegel think tank, said Draghi’s report contained “several creative and well-founded ideas for competition enforcement”.

But such proposals will be a hard sell in parts of Brussels, which has spent decades successfully fending off similar arguments from executives making deals or companies that have coordinated standards to keep challengers at bay.

A second senior EU official described Draghi’s report as “one of the most wonderful ways to weaken competition policy in a way that will be very negative for the real integration of the internal market”.

Whether the European Court of Justice would accept such a radical reinterpretation of how competition rules are applied would also be an open question.

Competition enforcers in Brussels have long argued that the Siemens-Alstom deal would not have created a European rail champion but a global monopolist in certain categories of high-speed train technology.

Now, thanks to the deadlock, “we have not just one, but two international champions — Alstom and Siemens,” said a third EU official.