Competition with the United States and China has become one of the priorities of the European Union, which must emerge from the “slow agony” in which it finds itself, in the words of the former president of the Central Bank European, Mario Draghi. , who was tasked with preparing a recipe book for the new European Commission. Its main thesis is that an injection of investments of up to 800 billion per year is necessary to emerge from lethargy, but the road map to improve the competitiveness of the club, which will be one of the main questions that the leaders will discuss in an informal meeting, will take place next week in Budapest, it also highlights other aspects, such as the promotion of companies and, above all, those of the sectors in which the game is currently being played, such as technology, and in which the gap with the rest of powers have shrunk and increased in recent times.
“Europe’s future influence will depend on the performance and ability to adapt of its companies. Currently, European companies are suffering an incredibly large deficit compared to their global competitors, mainly from the United States and China. This disparity penalizes us in many 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 Union. Advice, Charles Michel.
One of the EU’s problems is therefore the size of its companies. 99% are small or micro-enterprises, which employ 48% of employees and represent 31% of turnover. Medium-sized companies (between 50 and 249 employees) represent 0.8%, while they represent 15% of the workforce and 18% of revenues. Large companies represent 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 help large European companies grow and compete on the global stage. This can help diversify supply chains, attract foreign investment, support innovation ecosystems and project a strong EU image. Ultimately, a thriving economy supported by strong businesses places the Union as a whole in a position to negotiate more favorable trade deals, shape international rules and successfully confront global crises and challenges without precedent,” Letta believes.
According to the Forbes ranking, the first large European company (the French company TotalEnergies) occupies 25th place in a ranking 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 a fiercely competitive environment, the problem the EU faces is one where it devotes its main efforts. And the world has changed dramatically in recent decades. At the start of the 2000s, Europe certainly had “national champions” among large global companies, such as Volkswagen (today in 48th place in the Forbes ranking), but now the game is no longer played in sectors like automobile but on the ground. digital.
Only four European technology companies in the “top 50”
Only four of the world’s 50 largest technology companies are European, including German multinational business software company SAP, which has just dethroned Dutch semiconductor company ASML, which until now topped the European business rankings technological. “The EU’s global position in technology is deteriorating: from 2013 to 2023, its share of global technology income increased from 22 to 18%, while that of the United States increased from 30 to 38%,” warns Draghi in his report.
“The technological events of the 21st century, with the emergence of large American and Chinese technology companies, have left the EU behind, at least until now without ‘continental champions’. Instead of these large operators, we Europeans have walked with a very national vision of economic affairs,” underlines Santiago Carbó Valverde, director of financial studies at Funcas, in an article in which he gives as an example pan-European projects like Airbus. or Galileo.
When we talk about promoting national or European “champions”, eyes quickly turn to those responsible for competition at the European Commission, given the strict rules authorizing mergers or acquisitions of companies which make it possible to increase the size businesses.
On everyone’s mind is the case of the takeover of Alstom by Siemens, which the European Commission banned in 2019 on the grounds that it threatened competition and made the market more expensive. The operation would have placed this company as a world leader in the railway sector.
The battle of competition rules
Paris and Berlin then begin 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 the Franco-German Manifesto for an industrial policy adapted to the 21st century. and this was essentially aimed at limiting the power of the European Commission in these decisions and giving it to capitals.
The vice-president of Competition, the Danish liberal Margrethe Vestager, then stood firm and refused to relax the rules. One of their main arguments – and critics of this approach – is that large countries would always impose their will on small ones, thus generating a distortion within the community club. Vestager has of course declared war on “big tech”, which she has subjected to the strict control of competition rules as well as the new legislative framework for digital life with laws such as digital markets or digital services.
Now that the debate on “European champions” is back on the table, given the need to relaunch industrial policy, the pressure falls on Teresa Ribera, candidate for the Competition portfolio in the absence of the approval of the European Parliament. his candidacy. In fact, his position on mergers and acquisitions is one of the main questions that MEPs from the Economy Committee asked him when processing the written answers.
And after Draghi and Letta’s warnings, the “mission letter” in which Von der Leyen entrusts his tasks to Ribera contains an allusion to the revision of the guidelines on the assessment of horizontal concentrations. “Europe needs a new approach to competition policy, one that better supports businesses expanding into global markets, one that allows European businesses and consumers to reap the full benefits of competitive competition. effective and which is better targeted to our common objectives. “particularly decarbonization and just transition,” says the president of the European Commission, who has also tasked her with creating a new framework for state aid.
In his response, Ribera recommends “evolving” the corporate merger control policy to “take into account contemporary needs and dynamics such as globalization, digitalization, sustainability, innovation and resilience” while preventing “excessive accumulation of market power”.
The risks of “national champions”
But the search for national or European “champions” carries risks. In general, critics of this position consider that the lack of competition among large companies leaves them with no incentive to improve in areas 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 arise from market consolidation, and concentrated markets mean higher prices for consumers and greater inequality across the market.” »
“Industrial policy that reduces competition in order to direct more resources toward a single, globally competitive firm ends up insulating that firm from the very market forces that would enable its success. A company enjoying a monopoly in a national market will have no incentive not only to offer low prices, but also to innovate or improve efficiency. This lack of domestic pressure leaves national champions ill-prepared to compete in the global marketplace, not to mention the question of whether other countries will even allow these subsidized companies to operate in their markets,” note authors Bill Baer and Jack Malamud .
This is why the EU is trying to diversify its response to its competitiveness crisis. In addition to increasing the size of companies or reforming the state aid regime, the European Commission’s commitment is to simplify processes in order to remove obstacles for European companies.
“30 years after the single market, our economic union is far from complete. Our competitors have economies with continent-sized markets and public budgets. A California startup can grow and raise funds anywhere in the United States. But our businesses still face too many national barriers that make it difficult to work across Europe, and too heavy a 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 is stifling the EU. by the reluctance of certain countries, such as Holland or the German liberals, due to distrust of the banks of certain European partners, and also by the refusal of others, such as Luxembourg, Ireland or the countries Baltic countries, among others, to centralize the banking system. monitoring. 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 keep up.
