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Neelie Kroes
European Commissioner for Competition Policy
Competition, the crisis and the road to recovery
Address at Economic Club of Toronto
Toronto, 30th March 2009

Commission Européenne - SPEECH/09/152   30/03/2009

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SPEECH/09/152













Neelie Kroes

European Commissioner for Competition Policy




Competition, the crisis and the road to recovery





















Address at Economic Club of Toronto
Toronto, 30th March 2009

Ladies and gentlemen,

Introduction

It is my impression that Canada and the EU share not only language and ancestry but also the values of freedom, tolerance and social justice.

These are more than words - the price of these values has often been high.

It has been counted in the sacrifices of your fathers and grandfathers in war; those sacrifices and your belief in a common destiny are not forgotten in Europe.

Today, our economies share many characteristics and needs – we are more closely linked than ever before.

This achievement should remind us of how much we stand to lose if we allow international relationships to break down.

While it seems a distant prospect, the economic horrors of the 1930s and the war that followed are too dreadful to even consider repeating.

It may seem crazy to draw a line between this belief in a shared humanity and competition policy, but if you will indulge me – that is what I will try to do this morning.

Why we need competition policy

While I have been a lifelong capitalist, I could never accept that laissez faire is a good solution for a society. It was John Ralston Saul who said that "unregulated competition is just a naïve metaphor for anarchy" – we don’t need that. What we need are regulated markets. And the challenge is to maximise our prosperity by finding the most efficient ways to regulate them.

Competition in markets and competition policy enforcement are at the top of that list of effective market regulations.

Intervention is limited to where it is necessary – getting rid of the few rotten apples in the basket, while allowing the millions of good apples to get on with business.

In my opinion these forces have a natural home in advanced social market economies such as ours.

Today, Canada and the EU prosper from open competitive markets and the high level of skills of our people. One of the core ingredients making this possible is competition policy.

It's like the oil that lubricates our economic engines. The engine might not be running smoothly right now, but take away competition policy and it could splutter to a stop.

At the very least, we would travel more slowly down the road to recovery.

Competition encourages the innovations that create jobs. It keeps a lid on prices. It reminds us that we have to work hard if we want to succeed.

And that all adds up to the understanding that competition policy is part of the solution to our economic needs.

In good times and bad times we need it.

Tackling the current crisis

Do we have complete answers to the current problems? No, I would be a rich woman if I did have the answers!

Perhaps we should first try to learn something from Canada. Europe like many other places has been facing financial crisis.

In Canada you have so far escaped the full force of the financial crisis.

Your banking sector is in excellent shape by comparison.

That must, in part, be because your attitude towards risk and investment strategies and lending requirements has been more sensible and moderate.

In Europe we have a saving grace also.

Aside from the European Commission having the crucial power to control national government subsidies, we have spent the last five years developing, updating and streamlining our competition systems.

Now we are cashing in on them as their efficiency and flexibility help us to cope with the current volatile market conditions.

These reforms cover subsidy controls, cartels, mergers, antitrust and all the tools we possess to make markets work better.

We cut down the red tape and favoured pragmatism over some of the ideas and processes that had put competition policy in a ghetto marked 'for lawyers only'.

After four years – when the financial and then economic crisis hit - the systems were lean and fast and ready to deal with a moving target.

It's an approach that Wayne Gretzky calls "skating to where the puck is going to be, not to where it has been."

I promise you we are very grateful for this groundwork now. When national governments, big banks and the public suddenly want you to work at ten times your normal speed – literally - you need all the help you can get.

We might not have predicted the nature and the scale of the crisis – but we were smart enough not to leave our systems on auto-pilot, or assume that they would never be tested.

Leadership in times of crisis

The other thing the European Commission can offer to governments and markets and our partners is stability and transparency.

That is the sort of leadership that these times demand.

In my field of competition policy the best thing we can do is be very clear about how and why our rules should be followed, and what we can do to help companies and governments work within those boundaries.

Communicating at every turn is essential.

Some people want to hear that we have a free ride or a quick-fix for them.

That is not true – leadership demands we say that.

For example, we are crystal clear that cartels are harmful no matter what current economic growth rates are.

They cause billions of dollars of direct harm in both our economies, and by cracking down hard on one cartel we estimate that we stop another five.

So we can't go soft on them.

More than that, if we went easy on cartels, a culture of 'anything goes' would quickly develop... and that's the same sort of risky, complacent culture that fostered this wider crisis.

The story is similar for merger control. We have a Merger Regulation that can handle the complex cases that will no doubt be thrown at it.

We aren't about to let EU Member States create inefficient national champions so they can patch up their pride.

Nor do we want to see two struggling banks cripple each other through a botched merger, or create another bank that is 'too big to fail.'

So it is business as usual in merger control – for all our sakes.

If that sounds like 'tough love' – it is. It is better to have clear and strong rules in the first place and then stick to them – it lifts standards and markets know what to expect.

Tough love is certainly the way to describe our subsidy control in banking and other sectors.

European Subsidy Control – banks and cars

As I mentioned earlier this morning, unlike in Canada and the US, as Competition Commissioner I exercise control over government subsidies offered by European national governments.

These subsidies are known as state aid in Europe.

That system is not to everyone's taste but for Europe it makes excellent sense.

This type of subsidy control is essential for managing so many interests, and avoiding costly subsidy races and trade wars.

Governments are always tempted the bend the rules, so it is important that the European Commission is there – free of the threat of short-term political pressure – to guard our level playing field.

Hoping the rules are followed is not enough - we need a neutral referee to ensure the level playing field is respected.

Today this role is especially important in the face of the problems in our financial sector.

Controlling subsidies to banks at this time protects both taxpayers and the banks that are sound and able to operate without government intervention.

Having been used to create benchmarks for rescues of many banks, the anti-subsidy rules will now be used to help the rescued banks face up to their responsibilities and their true balance sheets.

They won't like being forced to open up their books – indeed it is my opinion after months of meetings with them that some banks are still in denial.

But it will happen because each bank knows that every other bank is being held to the same standards.

Only by doing this can we know what is really needed to restructure them or wind them down while minimising competition distortions.

But the problems we face have spilled into the real economy – far beyond the banks.

Your great writer Margaret Atwood is fond of borrowing a phrase from Gandhi: 'an eye for an eye leads only to blindness'.

Most recently we had to stare down the threat of this blindness in the car sector. Perhaps it's an industry we can swap notes on given the troubles from across the border that are also felt here.

We have resisted the idea of a special bail-out for the car industry because we believe that subsidy money must be invested rather than merely spent.

Simply handing out cheques to car companies is not a very creative way of spending government stimulus.

We have to find better ways to boost long-term growth and avoid a debt burden on future generations.

And the car industry's problems run deeper than anything that can be blamed on the financial or economic crisis.

They face problems of long term structural overcapacity, being divorced from their customers and the need to be greener. You don't fix those issues with only a cheque.

Conclusion

Selling the message that we have hard work ahead is essential. It will take more than government cheques to beat this crisis.

Stopping people who want to take the easy road of protectionism and going soft on the competition rules is essential.

If we want to keep our social market economies and keep them competitive, we have to reject the easy road.

Canada, like Europe, would be worse off without competition policy. Canada, like Europe, will be worse off if we don't fight this recession together.

2009 is going to be a tough and messy year – but we are determined not to go soft. To quote Mr Gretzky again, he said:

"The highest compliment that you can pay me is to say that I work hard every day, that I never dodge it,"

... I think I can agree with that.

We are working like hell to make recovery happen in Europe.

There have already been enough mistakes, enough lack of responsibility.

I want us to be able to turn around and look our grandchildren in the eyes and say that we did the right thing by them.


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