European Commissioner for Competition
Conference “Concurrence 2006”
Ladies and gentlemen,
Thank you for inviting me to speak to you today. I am pleased that so many of you are here – I think it shows that competition is a topic that is important for us all.
When I began my mandate as Competition Commissioner, I outlined three key objectives:
We have already come some way to achieving these objectives, and I would like to give you a flavour of what I feel have been the highlights of the past 18 months. I would also like to share with you some of our current projects, and my views on what the “next phase” of competition policy development should bring.
State Aid Action Plan
It has now been a year since I launched our State Aid Action Plan, which outlined a five year programme for comprehensive reform of state aid rules and procedures. State subsidies, when they are used properly, can help to address market failures which may hinder Europe’s overall competitiveness. But, State resources are precious and, if they are not well targeted, they can hinder competition in the market place. Consequently, the State Aid Action Plan aims to promote “less” and “better targeted” aid through a system that is grounded in economic analysis. We also want to increase predictability in the controls on State Aid, and to get rid of some of the red-tape for Member States, which will itself facilitate better governance at national level.
Our Action Plan received strong support from stakeholders when it was published last year. And implementation is already well underway.
In July last year we adopted a new framework governing public support to companies who carry out services of general economic interest. The framework ensures that support for essential public services can cover the costs incurred – including a reasonable profit. But at the same time, it seeks to enhance financial transparency, and ensure that there is no over-compensation which could have a distortive effect on the market. We also reduced red-tape for Member States by removing the need to notify aid to small and local public services - subject to certain conditions, in particular: proper definition of the public service, separation of accounts, and no over-compensation.
Last year we also adopted new regional aid guidelines, which will focus regional aid more closely on those areas that most need it – ensuring maximum coherence with the rules governing the structural funds.
One of our most recent and most important projects has been reform of the State aid rules on Research and Development and Innovation, the new Risk Capital Guidelines, and the de minimis proposal. I will return to these later on as they have an important role in my vision for the future of competition policy.
Effective antitrust and merger enforcement
Effective enforcement of the anti-trust and merger rules was also a key priority for 2005. In both of these areas we saw new, modernised rules come into force in early 2004. It was therefore important for me to ensure that we capitalised on these improvements by stepping-up the efficiency and timeliness of our actions.
Consequently, we put in place some important structural and strategic changes to reap the benefits of the modernisation.
Of course, our fight against anti-competitive behaviour is not just about improving our enforcement capabilities. We must continue to improve the regulatory framework in order to make it more effective.
We have already begun looking at the application of Article 82 of the Treaty. The Article 82 rules govern those companies who abuse a dominant market position. In December, we published a Discussion Paper on the application of Article 82 to behaviour which excludes competitors from the market. The Paper outlines a framework for enforcement which is firmly rooted in economic analysis, to ensure that we pursue those cases which are most harmful to consumers and competition. I am pleased to say that the Discussion Paper has prompted vigorous and wide-ranging debate, drawing comments from interested parties around the world. We now have some important decisions to take on some very controversial subjects in order to determine the best way forward. But what we have learned through the consultation is already helping us to focus our existing enforcement work on those cases which matter the most.
Last December we also published a Green Paper on damages actions for breach of the EC anti-trust rules. Consumers and businesses who are harmed by anti-competitive behaviour have long had the right – under the Treaty – to claim compensation for the damage that they suffer. And yet very few people actually do so. I believe that private enforcement actions are a key component of an effective anti-trust system – they not only secure compensation for injured parties, but also play an important part in encouraging compliance with the rules.
Our Green Paper outlined some of the existing barriers to private damages actions– principally the cost of proceedings and the lack of access to essential evidence – and it suggested some possible solutions. One thing that I really have taken to heart, is that we cannot simply take solutions adopted on the other side of the Atlantic and impose them here. Our European legal systems need tailor-made solutions. We are working hard on analysing the many contributions that were made to the debate, and I look forward to reporting on the next steps.
So, it has clearly been a busy period for developments in both anti-trust enforcement and anti-trust policy. But the initial phase of my mandate also saw an upward trend in mergers and acquisitions. The Commission’s merger control seeks to identify competition concerns on the basis of sound economic analysis and solid fact-finding. The merger wave has in particular brought an increasing number of cross-border mergers, and that has presented us with new challenges. I will return to this later, because how we approach this is important in shaping the future.
In 2005 we also published a major study on merger remedies, which evaluated remedies that were accepted by the Commission between 1996 and 2000. This review found 57% of the remedies to be fully effective, and only 7% had clearly failed to achieve their objectives. The findings are helping us to re-design our merger remedies policy in order to make it as effective as possible.
Pro active application of competition law
This brings me to the third objective which I outlined at the beginning of my mandate - a pro-active competition policy to complement the traditional ‘reactive’ approach.
Firstly, “competition screening” is one way to promote good competitive practice across the entire EU policy specturm. Last year, the Commission adopted new internal guidelines to ensure that all proposed EU legislation is systematically screened to identify its potential impact on competitiveness. This will ensure that any new legislation which restricts competition should only do so to the extent necessary to safeguard consumers, or to meet other Treaty objectives.
Secondly, I have launched sector inquiries into two important areas which have a direct impact on Europe’s competitiveness: financial services and the energy sector. These are both areas which have quite recently been liberalised, and we were receiving clear messages that something was still not working properly! So, the aim of the sector inquiries was to identify existing barriers to competition, and propose possible solutions. In both cases, our examination of competition conditions goes hand-in-hand with an assessment of how the internal market regulatory framework is functioning.
We published the preliminary results for both inquiries this year – and our concerns were broadly confirmed.
In the energy sector, we found serious shortcomings in both the electricity and gas markets:
In financial services, our preliminary report on payment cards shows that in some countries high card fees result directly from a lack of competition in the market. Fees can vary up to 400% across the EU which is a strong indication that consumers are paying more for their cards than they should. This sector has also seen abnormally high profits for a sustained period of time – we need to ask whether this is genuinely in the interests of the European economy.
Both of these inquiries are still ongoing, and I will say a few words about next steps later. We hope to publish the final results later this year - but if enforcement actions are justified, then we will not wait to take them.
What is next – outlook for 2006
That brings me nicely on to the next phase of competition policy. I hope you will agree that we have achieved a lot in the past 18 months. But Europe is facing some big challenges over the next few years and we have a lot of hard work left to do.
We in the EU are still lagging behind our international competitors in terms of innovation and labour productivity. The renewed Lisbon agenda is about securing the changes that we must make in order to harness the benefits of globalisation and achieve the prosperity, security and solidarity that our citizens need. It is about managing the process and accompanying people through it in order to achieve our ambitions for economic growth and more and better jobs. I am committed to ensuring that competition policy plays its part in fulfilling the Lisbon Agenda.
How will we achieve this?
The proposed new frameworks on State aid for Risk Capital and for Research, Development and Innovation will play a key role in raising Europe’s innovative potential, which in turn makes an essential contribution to economic growth.
We have increased the ‘safe-harbour’ threshold for risk capital aid to SMEs by 50%, to €1.5 million over 12 months. In my view, this adequately reflects the current level of the equity gap in the EU and ensures that the market remains the primary source of risk capital.
The new R&D&I framework introduces ground-breaking rules on new categories of compatible aid, such as €1 million for new innovative start-ups, and support for innovation clusters. The objective is to foster and encourage innovation by focusing aid on existing failures in the market. But it is essential to remember that there is a lot more that Member States can do to encourage innovation, besides giving State aid. And in my view, the proposals fall on the right side of the line. They provide much greater scope for compatible aid to R&D&I, whilst ensuring that this aid is targeted on those measures which genuinely encourage innovation and carry a limited risk of distorting competition and trade. We hope to adopt the new rules before the end of the year.
We have also proposed a new de minimis block exemption, initially with a ceiling of €150,000, which represents a 50% increase. We have listened carefully to those who have argued that a further increase is justified – the Spring European Council called for an increase to €200,000. It does appear that we can indeed justify such a figure, but this is the absolute limit! To go any higher would not be possible for several reasons:
In anti-trust, we will continue to focus on those practices that are most harmful for the EU economy and for consumers in order to maintain a level playing field for those who compete in the Single Market. I already expect that 2006 will bring around twice as many cartel decisions as 2004 – which was the last full year before the Cartel Directorate was established.
We will also continue our rigorous scrutiny of cross-border mergers. The recent trend towards cross-border mergers is a sign that the Single Market is a reality. Companies are reaping the benefits of open markets and free trade, and corporate restructuring and consolidation is a natural part of the globalisation process. Cross-border mergers also help to create strong groups who are able to face competition at home and abroad – global champions, based in Europe. That is why I am concerned when, in a few well-publicised cases, governments and authorities take action to hinder this process. Such ‘protectionism’ – or ‘economic patriotism’ as it is called in Paris - is ill advised. I am particularly concerned when this happens in newly liberalised markets, such as energy. That is why the Commission will continue to act decisively in response to any unjustified interference with corporate restructuring – using both internal market provisions and Article 21 of the Merger Regulation.
The preliminary results of both the energy inquiry and the payment cards inquiry indicate that anti-competitive behaviour appears to be contributing to the lack of market integration and hindering competitiveness. These are both key sectors for the Lisbon agenda. High payment card fees have a direct impact on almost every citizen in the EU; and the Spring European Council put secure, affordable energy supplies at the heart of the Commission’s priorities. We will conclude these two investigations this year, and we expect to publish our preliminary report on core retail banking products next month. And I can assure you that wherever we find anti-competitive practices, we will not hesitate to take action. Our initial experiences in energy and financial services have shown that ‘sector inquiries’ will be a valuable new tool in our work to complete the Single Market. And it goes without saying that we may well launch inquiries into other sectors where we suspect that competition still has more to contribute.
Ladies and gentlemen,
There is no doubt that we have an ambitious programme and some very hard work ahead of us. But I think we have made good progress and the foundations are there to enable competition policy to play its part in achieving our Lisbon ambitions. I am convinced that we are on the right road - but it is not a road that can be walked by the Commission alone. We can only achieve our objectives for growth and jobs if industry plays its part and is as committed as we are to securing solidarity and economic prosperity. I think I can confidently say that you will travel with us on our journey towards a more prosperous and dynamic Europe.
Thank you for your attention.