ANGST OVER petrol prices, confusion over Britain’s relationship with the EU, bemusement at the American president’s legal tangles: it feels like the 1970s in Europe again. In policy circles, too, talk of corporate “champions” and “industrial policy” is now heard nearly as freely as it was in the era of bell-bottoms and dodgy sideburns. Only the joyless technocrats at the European Commission are standing in the way of a full return to disco-era dirigisme.
There is no talk of large-scale nationalisations (yet). But there is a new tension in EU policymaking. On one side are fans of competition rules as old as the European project itself, which forbid member states from mollycoddling “national champions” and aim to give consumers a fair shake. On the other are those who argue that these very rules are hindering the emergence of “European champions” capable of taking on rivals from China and America.
Large industrialists have long been sceptical of the European Commission and its competition-enforcement arm. This is run by Margrethe Vestager, an industrious Dane with political aspirations (she is a contender to run the commission after the European Parliament elections in May). Martin Bouygues, a French construction-to-telecoms magnate, spoke for many a boss in March when he decried “ayatollahs of competition” in Brussels, allegedly hellbent on hobbling European firms.
Such opinions are heard frequently these days. Why should European governments play by the rules—not subsidising domestic firms, for example—if their rivals are flouting them? Shouldn’t Europe respond in kind to Chinese industrial meddling and American protectionism?
The competition sceptics have made some inroads. On November 20th the EU agreed to allow governments to block foreign investment in sensitive industries from infrastructure to media and defence. The move is largely a response to concerns over Chinese takeovers of European firms. Though protectionist, it is no worse than a similar mechanism America frequently uses. Emmanuel Macron, the French president, has suggested Brussels bar non-EU firms from public tenders if their home countries do not reciprocate.
New ways are being found of funnelling state funding to industry, for example with research-and-development grants. This breaches the spirit of European state-aid rules. Ms Vestager has given ground with a package to “modernise” how the EU evaluates such largesse.
The most vocal lobbying has been on mergers. European politicians have revelled in Ms Vestager’s bashing of large American businesses, such as whopping fines for Google and demands that Apple pay back Ireland for undue tax breaks. But they would like her to indulge the locals, easing rules to allow the creation of “European champions”.
Take mobile telecoms. Europe often blocks mergers which would give an operator a dominant position in a single member state. By contrast, American trustbusters tend to look at the effects of a merger across all 50 states. As a result, Europe has around 100 operators, including dozens of tiddlers, whereas America is shifting from four networks to three. How can European companies achieve critical scale, which might aid their profit margins and their overseas ambitions?
Unions agree with their bosses about the need for bigger firms, which they hope will result in fatter profits and higher wages. They have sizeable political allies. In June Angela Merkel, the German chancellor, said European competition law “does not help us sufficiently to build” such champions. Mr Macron, who worked on mergers in his years as an investment banker, is pushing in the same direction. He has nudged French firms into deals with other European groups, dubbing them “European champions” to soften the blow of losing national icons.
A test case is the merger of the rail arms of Germany’s Siemens and France’s Alstom. The aim is to create a “Railbus” able to compete globally much as Airbus does in aircraft. Backers say Europe needs a titan to compete with China’s rail giant, CRRC. Yet Ms Vestager seems to be resisting the deal. She appears to think the combination would wield too much power in Europe, where it would have three times its biggest rival’s share in some markets, unless it disposed of many of its businesses.
So far, the commission has satisfied neither competition purists nor sceptics. A merger of two stockmarkets, Deutsche Börse and the London Stock Exchange, was blocked in 2017. A steelmaking combination of ArcelorMittal and Ilva, a struggling Italian firm, was approved in May but only after some disposals. Essilor and Luxottica, two big eyewear companies, merged in a €48bn ($54bn) deal, with EU assent in March. A military shipbuilding alliance between Italy and France is being mulled.
Pro-consumer types like Ms Vestager are losing influence. Britain, which has often helped block Franco-German protectionism, is on its way out. Populists who clamour for the good old days of European industry happily blame Brussels for getting in the way. They could be more powerful after the European elections. Oddly, their priorities might sometimes chime with those of Mr Macron and Mrs Merkel.
One factor driving the mergers is Europe’s declining significance as a home of big global companies. A decade ago, 28 of the world’s 100 most valuable firms were based in the EU. That figure is down to 17, and will shrink to 12 when Britain leaves the bloc. The youngest company worth over $100bn that was founded in an EU country is SAP, a German software giant launched in 1972. Mergers may be the only way for Europe to bulk up.
European policymakers know—even if they will not admit it publicly—that much of the corporate lethargy is down to archaic labour rules, anaemic capital markets and a balkanised single market. But reforming these is as hard as ever. Blaming Brussels and its supposedly dogmatic Anglo-Saxon worldview for the woes of European industry is much easier.