The takeover bid and the general interest
The National Commission on Markets and Competition (CNMC) has issued its opinion on BBVA's takeover bid for Banc Sabadell. We are now at a more political moment: the phase in which the central government—as established by regulations—must rule on the additional conditions it imposes on BBVA for reasons of general interest. From then on, if BBVA maintains the takeover bid, the shareholders will have the say.
It's worth clarifying a misconception about the relevance, beyond the guarantee of competition, of considering the general interest. It's not a little, but a lot. For any sector, including the financial sector, in which companies have a significant level of fixed costs—and, therefore, unlimited scaling reduces unit costs without limit—regulated competition can contribute to the general interest, but it is far from being a sufficient condition for the best possible outcome. Let me explain. Without any regulation, the logic of technology and competition would lead, in the extreme case, to a merger in a single company. We would then have productive efficiency, but this company would be a monopoly and would behave as such, which would be highly undesirable: consumers and businesses in need of credit would suffer. Those of the present and even more so those of the future, since the pace of innovation would slow significantly. In some sectors, fixed production infrastructures (think networks) are of such magnitude that there is no choice but to accept only one, in which case it must be highly regulated. In others, such as the banking sector, it can be argued that encouraging the existence of multiple companies and monitoring competition could be sufficient to avoid monopoly profits. However, paradoxically, this means giving up perfection in terms of productive efficiency, and if so, there is no principle of economic theory that indicates that, once the absence of monopoly profits is assured, there are no other measures of public action that are in the general interest.
The CNMC resolution implicitly recognizes this when it establishes temporary measures to guarantee the availability of credit to small and medium-sized enterprises. It means acknowledging that the merger could negatively affect the local banking ecosystem. But it's one of two things: either this could be due to a lack of competition, in which case it's incomprehensible that they're temporary, or it's an additional deficiency caused by the merger, which is in the general interest but not a matter of competition. The Commission has opted for the latter. It sets conditions, but they are to smooth the transition, including ensuring unanimity in the opinion. In any case, it acknowledges that there will be a problem with local banking. It simply tells us that we won't find it for three to five years. It takes us for short-term people.
Beyond those already identified by the CNMC, there are other important vectors for the general interest. There is significant room for improvement. One that has been repeatedly pointed out relates to macroeconomic prudence: we want to broaden the scope of the sector. too big too fail? Another is the territorial one. I'm particularly sensitive. When economists here get together to talk about our (and their) affairs, the quality of the conversation is enhanced by the regular presence of economists from CaixaBank and Banc Sabadell. But there's no BBVA. And I know, therefore, what the merger will entail.
I firmly believe that it's in Spain's general interest to be more like Germany and less like France. Maintaining the independence of Banc Sabadell is a step in the right direction.
President Illa has formulated a clear objective for his economic policy: to strengthen the Catalan economy to exercise leadership in the Spanish economy. Perhaps history will say that it was a quixotic objective, or perhaps it will say that it marked the beginning of a new Catalan economic dynamism and an economically multi-centered Spain. I hope it's the latter, because a Spain composed of many economically strong territories cooperating with each other can only benefit general prosperity. Now, to make this possible, the playing field must be level. Here, the central government's role as referee is fundamental. In Catalonia, the "Endesa, German rather than Catalan(today it's Italian). Maintaining the decision-making center of Spain's fourth-largest bank in Catalonia is what's next. Either that, or the Illa project will be damaged.
