By Lina Saigol
French and German politicians are calling for urgent reform of European merger controls, which they deem obsolete in the face of China’s growing economic power. Hours after the European Commission vetoed the Alstom-Siemens rail merger , Finance Minister Bruno Le Maire of France and Germany’s economic minister, Peter Altmaier, said they were preparing a joint initiative which would make it easier to carry out cross-border deals.
Such reactions amount to histrionics. Firstly, the commission makes technical, economic and legal assessments on mergers, not statements of policy. There are enough reasons to fear that a combined Siemens-Alstom would have had the muscle to bully some of its customers, smaller European rail operators, depriving them of a choice of suppliers. It could also have led to higher prices for the millions of passengers who travel by rail everyday.
China, furthermore, doesn’t have a share in the European rail market. Siemens /zigman2/quotes/200873563/delayed DE:SIE -3.55% and Alstom /zigman2/quotes/209823934/delayed FR:ALO -1.26% had argued that their tie-up would have allowed them to shore up defenses against the state-backed China Railway Rolling Stock, whose size and access to cheap finance would sideline competitors. But there is no evidence that Chinese suppliers are set to enter in the immediate future the market for rolling stock and signaling.
Secondly, big isn’t always beautiful. France’s, and lately Germany’s, obsession with creating national champions overlooks the fact that companies don’t need to dominate their domestic markets in order to hold their own in competitive international markets.
In the last three decades, the European Commission has rejected fewer than 30 deals and rubber stamped more than 6,000.
The widely held belief that companies need to shore up economies of scale in manufacturing and R&D can have the opposite effect, creating sprawling, inefficient companies. Boosting volume is useless if margins don’t improve.
Thirdly, the European Commission can hardly be accused of being hostile to deals. It has approved dozens of cross-border mergers that created European powerhouses, including the €46.2 billion tie-up in 2017 between Italy’s Luxxotica and France’s Essilor, which combined the world’s leading consumer eyewear group , maker of Ray-Ban sunglasses, with the biggest European lens maker.
If numbers prove anything, it would be the commission’s bias for mergers. In the last three decades, the commission has rejected fewer than 30 deals and rubber stamped more than 6,000.
True, Brussels has sometimes stumbled. In 2002, for the first time, the European Court of Justice reversed three of its decisions to block big mergers because of a flawed procedure. It found that reviews were carried out too quickly, and that the economic logic was weak.
Since then, the commission has introduced more checks and balances. A chief economist analyzes the deals. Cases are tested and challenged by a “devil’s advocate” panel. And companies are given more time to defend their planned mergers.
That makes it hard to view France and Germany’s tantrums as anything but politically motivated. Both governments have more pressing economic issues than trying to fix competition laws that aren’t broken.