EU 'antitrust' reform: mergers or more single market?
The European Union is facing one of the most important economic debates of the coming years: should competition rules be relaxed to allow the creation of large European companies capable of competing with North American and Chinese giants? Or, before easing merger control, should Europe complete its single market?
The issue has gained momentum following the reform being prepared by the European Commission on the criteria used to analyze business mergers and acquisitions. Brussels wants to give more weight to resilience, investment, and innovation, with the aim of fostering larger European companies. This would involve reducing the focus on prices that the short-term impact of mergers has had until now.
Europe has difficulties in generating large global corporations in strategic sectors such as artificial intelligence, quantum computing, clean energy, telecommunications, and defense. European companies often operate in markets that are too fragmented to achieve the scale of their American and Chinese competitors.
The reports by Enrico Letta and Mario Draghi on European competitiveness reinforce this diagnosis. Draghi argues that competition policy should place more value on the innovation and investment capacity of merged companies, not just the potential negative effects on prices. He also points out that European regulation is too intrusive, bureaucratic, and complex, and can hinder innovation and the adoption of new technologies.
However, it is not clear that easing merger control is either necessary or sufficient to create "European champions." The prohibition of the merger between Alstom and Siemens was controversial, but it is not clear that it has diminished European competitiveness in high-speed trains. The decisive factor is the size of the market in which they operate. If the European market remains fragmented by national borders, different regulations, and state interests, a merger may create larger companies within a country with more market power, but not necessarily more globally competitive European companies.
The EU has an independent competition authority, less subject to political changes than equivalent bodies in the US and China. This regulatory stability can be attractive for long-term investment by offering greater legal certainty and less dependence on the whims of political power. However, this institutional virtue cannot compensate for the lack of a fully integrated internal market.
In telecommunications, major European operators have for years been denouncing that market fragmentation hinders the deployment of 5G and fiber optic networks: spectrum auctions continue to be organized by member states, whereas in the US, for example, they are conducted at a national level. In this context, allowing national mergers could increase market power without resolving the underlying fragmentation.
The same applies to the banking sector. Europe has not completed banking union, especially regarding common deposit insurance and resolution mechanisms. This hinders cross-border mergers and keeps European banks in a less competitive position compared to North American ones. Economic nationalism also plays a role, as shown by political reluctance towards cross-border operations like UniCredit's interest in Commerzbank.
The Commission seems aware of this risk. Teresa Ribera has warned that market integration and European champions are two related issues. The EU could modernize its competition policy by incorporating broader criteria – innovation, investment, resilience, sustainability, and security of supply – but without abandoning the principle that competition protects consumers, small businesses, and innovation. R&D alliances are an alternative for sharing costs and knowledge without eliminating market competitors.
Europe needs companies with greater scale, and for that, a more integrated market is necessary. Merger liberalization can help in some cases, especially in high-tech or capital-intensive sectors. However, if this liberalization becomes a shortcut to avoid deeper reforms, the result could be counterproductive: less competition, higher prices, and large but protected companies, not necessarily innovative ones.
The reform of European antitrust legislation will therefore be a decisive test of the economic model the EU wants to build. If Brussels succeeds in combining a modern competition policy with genuine internal market integration, Europe will be able to generate larger companies without sacrificing competition.
