How to (not) build European industrial champions
But also — Car emissions, Google, Ukraine
Hi! Today is Monday 23 September, and here is your EU news summary for the week. Feel free to share this newsletter with friends and colleagues, and follow us on Twitter and LinkedIn.
The Briefing
The recent Draghi and Letta reports make no bones about it. The EU’s industry and economy are lagging behind that of the US and China. With high energy prices, a lack of private capital being channeled to innovation, and too much red tape on businesses, the EU risks undergoing a "slow agony".
Against this backdrop, some call the EU to actively take part in building European industrial champions, including by revising merger rules.
CONTEXT • In 2019, when the European Commission prohibited the merger between Alstom and Siemens — two European leaders in the rail sector — France and Germany called for an overhaul of the competition rules in a joint manifesto.
Their proposals included revising the 2004 Merger Control Regulation (EUMR) to "to take greater account of competition at the global level, potential future competition and the time frame when it comes to looking ahead to the development of competition to give the European Commission more flexibility when assessing relevant markets.”
Paris and Berlin even suggested that the Council could acquire the right to veto Commission decisions in certain specific cases where the continent's industrial strategy is at stake.
Bruno Le Maire then commented: "The European Merger Control Regulation dates back to 2004. Since then, new industrial champions have emerged in the rest of the world with unprecedented speed".
The idea is to encourage the emergence of European champions by making it easier for big companies to merge and acquire a critical mass that enables them to compete with large companies on an international scale.
LETTA, DRAGHI • The recent Letta and Draghi reports have put the subject back on the table.
Mario Draghi calls for a targeted revision of the way competition rules are applied. “Although stronger competition will in theory generally both lower prices and foster innovation, there are cases where it can be harmful to innovation”, he argues.
In his view, the Commission should admit justifications linked to innovation (‘innovation defense’), take better account of future market developments, and include security and resilience in its merger assessment criteria.
In line with Enrico Letta’s assessment, Mario Draghi also suggests that consolidation in the telecoms sector may be necessary.
Draghi's analysis is nuanced: he points out that competition is essential, as it fosters innovation, lower prices, better productivity and a higher level of investment. To sum up: a high level of competition is the solid foundation on which European industry must be built, but the rules and their application must be adapted in specific cases.
YES, BUT • Revamping parts of the EU’s merger rules and their application is not met with unanimous approval. Reacting to the publication of the Draghi report, current Competition Commissioner Margrethe Vestager told Euractiv: "There is no evidence to suggest that companies with a monopoly-like position or with very large market shares are willing to invest more than companies exposed to competition".
Within the European Commission itself, directorate-generals differ in their approach to these issues. DG Competition is resolutely in favor of free and undistorted competition; DG Grow, which was under the leadership of Thierry Breton until last week, is more open to consolidation in key sectors.
COMMISSION • The new European Commission seems to be foreshadowing a shift, at least semantically, towards a more interventionist approach to issues relating to industry, competitiveness and competition — one Commissioner is now responsible for tech sovereignty; one will be in charge of economic security, in addition to international trade; while another will be in charge of prosperity and industrial strategy.
In the mission letter sent to each of the Commissioners-designate, Ursula von der Leyen explicitly mentions the Draghi and Letta reports, calling on each future member of the College of Commissioners to “draw” on them.
The mission letter sent to Teresa Ribera, the Commissioner-designate for the competition portfolio, suggests that a new approach to merger control is being considered at the Commission’s level: "Europe needs a new approach to competition policy — one that is more supportive of companies scaling up in global markets".
The former Spanish minister confirmed this to the FT: “There is a question of size at the international level (...). In terms of what is the role to be played right now by this [competition] portfolio (...), something needs to evolve and to adapt to the circumstances”.
Reacting to the letter, Margrethe Vestager warned that a revision of merger control rules could open a Pandora's box. The problem with a Pandora box is that “you can't really close it, which creates a lot of uncertainty", she said.
The first EU-wide merger rules date back to 1989. They were revised in 2004. Without a reform of these rules, it seems unlikely that the European Commission will really change its approach to mergers — the Court of Justice of the EU (CJEU) closely monitors the Commission's application of the rules in question.
In a post-Illumina/Grail world — a case in which the Court of Justice slapped the European Commission on the wrist for adopting an overly creative interpretation of existing law — we can expect the Commission to be more cautious in its interpretation of competition law.
In Case You Missed It
VROOM VROOM • Several car manufacturers are putting pressure on the European Commission to delay the application of new CO2 emission standards.
From 1 January 2025, European carmakers will have to comply with an emissions threshold of around 95 grams of CO2/km for their entire fleet. This threshold is an average: it is calculated on the basis of all the new cars sold by each manufacturer (the more electric cars a manufacturer sells compared with combustion cars, the lower its average emissions).
Last week, the European Automobile Manufacturers' Association (ACEA), chaired by Renault CEO Luca de Meo, sounded the alarm: many European carmakers — including Renault, Volvo and Volkswagen — believe they will not be able to comply with these rules. Sales of electric vehicles in Europe are slowing down. According to ACEA, electric vehicles accounted for 14.4% of the market in August 2024, compared with 21% a year earlier.
In a memo that is going around in Brussels, several manufacturers explain that the fines for non-compliance with the rules could reach a total of 13 billion euros.
The manufacturers in question are therefore calling for an "urgent revision" of the rules. In particular, they are calling for the 2025 emissions to be delayed until 2027. This threshold is just the first of a long series that eventually leads to a ban on the sale of combustion-engine vehicles in 2035.
The European car industry is not speaking with one voice: Stellantis says it is ready for the rules to come into force and is against any form of delay in their application. "Everyone has known about the rules for a long time and has had time to prepare, and so now it’s time to have a race," commented the company's CEO Carlos Tavares.
Transport et Environnement (T&E) considers that the drop in sales cited by manufacturers is temporary: according to the NGO’s estimates, sales of electric vehicles should reach 20-24% of total sales in 2025, thanks in particular to the launch of seven new all-electric models costing less than €25,000.
The European Commission has acknowledged receipt of ACEA's letter, to which it will respond ‘in due time’.
UKRAINE • On 20 September, the European Commission proposed an exceptional loan of €35 billion for Ukraine. This loan would be granted under macro-financial assistance (MFA), which is aid paid to EU partner countries experiencing financial difficulties.
The loan will be financed by revenues from frozen Russian assets in Europe, but also by contributions from Member States and other third countries. The loan is part of the Extraordinary Revenue Acceleration (ERA) plan, a programme devised by the G7 in June to raise $50 billion using guarantees on the profits from Russian assets frozen in the EU.
During a visit to Kiev last Friday, Ursula von der Leyen announced that these funds would be used primarily to stabilise Ukraine's financial situation so that the country can better support the war effort. Kiev will be free to use the money as it sees fit.
This proposal still has to be examined and adopted by the European Parliament and the Council, probably before the end of the year. A first payment should be made shortly afterwards. Total EU aid to Ukraine since the start of the war recently reached €118 billion.
GOOGLE • On Wednesday, the EU’s General Court annulled a fine of almost €1.5 billion imposed on Google in 2019 in the Google Adsense case. The European Commission considers that Google abused its dominant position on the market for online search advertising intermediation between 2009 and 2016.
Google uses AdSense for Search to provide advertising to websites that feature a search engines. Google acts as an intermediary — a kind of advertising broker — between advertisers and website owners ("publishers") who want to use the space around their search results pages for advertising purposes.
According to the Commission, the agreements concluded between Google and publishers between 2009 and 2016 contained restrictive clauses, limiting the display of advertising from competing services. Complaints from companies such as Microsoft, Expedia and Deutsche Telekom led the European Commission to fine the US company.
In its decision, the Court of First Instance "upholds the majority of the Commission’s findings" but annuls the decision for two reasons: (i) the Commission has not demonstrated that the clauses had the ability to deter publishers from seeking advertising from Google's competitors or to prevent those competitors from competing with Google, and (ii) the Commission has only taken into account the cumulative duration of the contracts, without examining whether publishers had the opportunity to turn to Google's rivals when the contracts were renewed.
The Commission has 2 months to appeal the judgment.
What We’ve Been Reading
On Substack, Sam Wilkin explores what he calls “the invisible urban car subsidy”. “Europe’s public spaces are littered with idle cars whose owners pay almost nothing for the privilege of storing them there. It's a subsidy worth billions, mostly to the wealthy”, he writes. Read the rest of the story here.
This edition was prepared by Augustin Bourleaud, Marwan Ben Moussa, Elisa Zevio, Antoine Ognibene, and Maxence de La Rochère. See you next week!