European Commissioner for Competition
Commission Enforcement Policy and the Need for a Competitive Solution to the Crisis
Address to the Irish Centre for European Law
Dublin, 17 July 2009
Banks – restructurings and sustainability
We are still far away from a proper recovery, and the most crucial step – cleaning up the banks – is yet to be taken.
European governments are potentially spending 16.5% of GDP on bank bail-outs. The European Single Market is undoubtedly affected by this – it is a market distortion. Because of this we have to work very hard to re-level the playing field.
Some countries are in a more difficult situation than Ireland, but everyone is having a tough time. With commitments running for years, and several trillion euros now propping up Europe's banks, the numbers don't lie.
To state the obvious: that support can't last forever. It's not healthy for anyone:
Not the aided banks;
Not the banks surviving on their own;
And certainly not ordinary people - you pay for it as taxpayers or customers.
Aid is not a substitute for a sustainable business model.
Of course, temporary rescue measures were needed for short-term stability. To that end since the autumn of 2008, the Commission has overseen recapitalisation of many banks, an effort which removed the immediate danger of systemic failure. We also laid the groundwork for a broadly common pricing model for the remuneration of state support. Throughout these efforts our aim has been to ensure that that Member States aid measures would not distort the Single Market.
But we must be honest and accept that deeper change is needed to secure long-term viability and confidence. The road to the viability of the banking sector goes through restoration of the viability of individual banks. This is why the most problematic banks are put to more far-reaching restructuring requirements. The scrutiny and stress testing of their business models together with the implementation of an adequate restructuring plan should ensure their return to long-term viability, while avoiding competition distortions.
Each bank is in a different situation and these cannot be pre-judged. However, both general regulations and restructurings of individual banks must be implemented in a way that reduces systemic risk.
Obviously, those sorts of changes don't happen by magic – they need the involvement of the European Commission and other European bodies. And I am grateful that we have such a good working relationship with the Irish Government – because national governments are essential partners in these changes too.
For my part I am now working to ensure there is robust competition in the new banking market structure. We can't let competition drain away through neglect or special favours.
Of course there are some people who find my questions and judgments inconvenient . But to entertain the idea that we don’t need a market referee, or the Single Market: that is crazy . That would be like telling a rugby fan that the Six Nations matches will go ahead without a referee, or that instead of Six Nations, it will now be a One Nation tournament!
Please, let's use common sense here.
It's now time to move into the second stage of our tried and tested state aid rules. In other words: restructuring must follow the rescue aid that was given to around 30 banks in 2008 and early 2009.
We added real value in helping to save banks from collapse, now we have to add real value getting them back to long-term viability.
For example, we have recently agreed on major restructuring at several German banks. This was not easy for anyone. But it worked because all parties co-operated and because these banks realised that by taking medicine now, they would return to a better state of health in the long-term.
There is no reason to think that success will not be matched elsewhere in Europe if we achieve similar co-operation.
For me, the win-win results I am looking for are where:
the banks are viable without state support
the taxpayers, my shareholders, escape a huge bill
Non-aided banks are not punished because of aid given
the bank has a business model that reduces systemic risk.
Wider regulatory reform
On wider regulatory reform, all competition authorities have a strong and common interest. Mistakes in regulation haunt us – we are often stuck dealing with problems the regulators don't see or can't fix.
The financial turmoil was not stopped by borders, and our regulation must take this into account. The objective in Europe has to be a cross-border regulatory and supervisory system appropriate for the Single Market. To me it is clear that we must avoid a nationalistic perspective.
I think we must all change our ways – from kitchen-tables to the boardroom. We were addicted to double-digit returns and rarely asked how it was possible. So, I don’t believe bankers have a monopoly on failure or greed - we’re all responsible. We have to address this by asking ourselves the hard questions and avoiding the easy answers.
Ireland and Europe need each other
We must also see that this crisis is bigger than each of us. That means it will be even worse for our grandchildren if we don't work together to pull out of it.
European solutions will be a great help in achieving this. European solutions are the pragmatic middle road between national solutions – which are not enough – and global solutions, which are not often possible.
In proposing pragmatic European solutions, I hope for pragmatic engagement in return.
I have seen some of it from the dozens of bank CEOs I have met, but for many of them the penny is yet to drop. They have not yet adjusted to the idea that the world does not owe them a living.
I hope that their self-interest will wake them up – because the truth is that no money exists for a second bail-out.
As with the general Irish debate about Europe, I hope that that pragmatic engagement beats complacency. The banks need to work with us in the coming months.
Competition policy: recovery and enforcement
Turning now to the wider application of competition policy through the crisis … if any of you have followed my speeches of this year, you will know how determined I am to continue with our usual enforcement.
We would do no favours to the economy by going soft on enforcement. If anything, anti-competitive activities – such as cartels - hurt consumers and the economy MORE in the bad times.
So you will see us continuing to look deeply at key sectors such as pharmaceuticals, energy, transport and technology. You will also see us continuing to take stock and update our policy and guidance too.
It was continuous state aid reform that ensured the system was ready to handle the hardest parts of the financial crisis; it would have been much harder to tackle the crisis with outdated tools.
I am passionate about this because when we do our job – consumers save billions of euros a year. And now with the bank rescues – we are also saving billions of taxpayers' money by targeting and limiting the aid.
In other words: our enforcement keeps economic actors on their toes. And we need to be on our toes if we are to stay competitive. Robust competition is an excellent reminder that real economic progress comes from hard work and innovation.
We also have an important impact through our advocacy. This is the carrot rather than the stick. We use our seat at the wider Commission table to embed competition principles across a range of policies – from building a new energy economy, to telecoms, to stopping protectionism. We also work to lead debates at the global level – so that competition cultures are built on Europe's vision of the level playing field.
As interesting as state aid and economic recovery is … I imagine you are most interested in our antitrust work. So let me touch on that for a few moments.
Our new Article 82 Guidance is a good place to start, given that John Temple Lang will also speak on the subject later today.
Article 82 Guidance
Our Article 82 guidance reflects two strong trends in EU competition policy in recent years.
The trend towards an effects-based approach to competition enforcement – a more economic approach with better assessment of consumer harm and benefits.
The provision of guidance on Commission policy and enforcement priorities, in the interests of clarity and predictability.
This focus on effects reflects a move away from what some people would call a "form-based" approach to Article 82.
Under that so-called "form-based" approach, certain behaviours were seen as problematic in general. Now, instead of making assumptions – for example that rebates and product-tying and bundling are a problem – we require evidence to back such views before we will act.
Signing up to an effects-based approach also means we are unlikely to pursue a case unless a firm's conduct is likely to cause consumer harm .
Some have suggested that an effects-based approach might lead to under-enforcement or less legal certainty – I don't agree.
We will not hesitate to take action where there is clear evidence of a problem.
And I accept that the guidance does not cover every situation. But I make the point that it is not intended to cover every situation, and it is not a statement of law. We simply hope to provide additional clarity beyond the case-law of the courts.
To borrow from the new US assistant attorney general for antitrust, Christine Varney, here, I have full confidence in "the ability of antitrust enforcers to distinguish between anticompetitive acts and lawful conduct" . You see this use of judgment already in margin squeeze cases such as Deutsche Telekom and Telefónica.
At the end of the day, market power is a regulatory risk that only the companies themselves can manage. In the words of the European courts this is their 'special responsibility.'
In general, I think t he Guidance is appreciated by stakeholders. They tell me it strikes a balance between the need to lay out general principles, while leaving flexibility for particular circumstances.
This is welcome feedback – we want the text to be workable in exactly this way.
This workability is proven by its application in cases such as the Intel rebate prohibition decision (from May 2009). We applied the equally efficient competitor test using methodology set out in the Article 82 Guidance.
So, in summary, I think that our Article 82 guidance offers a new level of certainty and predictability for companies. It does this through this single document, and that is a service to companies that they both need and want.
If I take a step back now and look at our enforcement and our crisis response – there is a strong pattern that emerges: our desire to be flexible on procedures, but firm on principles.
In terms of our work programme – the fact that we refuse to choose between dealing with the crisis and our usual enforcement is a good thing. It means more work, but also a better outcome for the European economy.
Giving both certainty to business and protection to consumers and taxpayers remains essential.
I look forward to your questions.