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SPEECH/ 09/420

Neelie Kroes

European Commissioner for Competition Policy

Lessons learned from the economic crisis

Figures and graphics available in PDF and WORD PROCESSED


Address to Committee on Economic and Monetary Affairs, European Parliament

Brussels, 29 th September 2009

Honourable Members,

It's been a while, as they say. But I am glad to be back before you all – new members and returning members. And of course, I offer my special congratulations to Sharon Bowles on her election as Chairwoman of ECON.

I am here to talk to you about our Annual Report for 2008 but before I do that let me start first with a few observations on the current crisis… Sharon said recently that we “can't regulate risk away.” She is 100% correct. We need a culture change where more self-discipline is exercised. But self-discipline alone obviously cannot deliver us all the outcomes we want from our crown jewel, the Single Market.

What did the crisis teach us?

Overall, this crisis has been handled well compared to the Great Depression and previous threats of protectionism. Indeed, the Commission has been quick and loud in resisting protectionism. And we have shown the value of competition policy in safeguarding the Single Market.

But the speed and scale of the financial crisis also brought another trend into the limelight: the Commission’s role as an enabler. Enforcement remains our core business, of course. But in the urgency and confusion after the Lehman Brothers collapse the Commission was able to work with the European Central Bank, national central banks and Member States - in new ways - to deliver the legal certainty needed for bail-outs and a measure of stability in the financial sector.

The ability of the Commission to respond to the crisis with a combination of Community policies has been crucial. We used our insights from monetary and fiscal policy and the financial markets to inform our response through competition policy. In turn, our competition policy insights helped my colleagues formulate their policies.

This is positive proof of how helpful it is to have such policy areas under one roof in the Commission.

Like all systems, ours can always be improved. But after years of refinement I think it is fair to conclude that our system is effective. Indeed, many regard it as the best. Our state aid controls exemplify this reputation. From the start of my mandate, I have worked hard to reform state aid policy so it could better support our long-term Growth and Jobs strategy. And until this crisis began Member States were indeed spending less on aid but getting greater returns - because aid was more targeted at horizontal measures such as research, development and innovation, instead of favouring big companies or failing industries.

I am happy that we undertook this work from the beginning of the mandate. For when the crisis came it sent all economists back ‘to the drawing board’ and a special response became essential. Four years of reform enabled a better response.

In particular, we have seen a lot of aid being granted to individual banks. While the aid may have gone to individual banks, it was to deliver a horizontal objective: stabilising the financial system. This committed focus on horizontal objectives has been one of the Commission's biggest steps forward in state aid.

Even though we were operating in a crisis context, where speed and flexibility gained a new level of importance, we delivered that without compromising on the principles of the level playing field. Nor did we leave taxpayers to pay an open-ended bill.

Given the terrible strains of the past year, it is a real achievement that our Single Market has remained intact. But it has, and we owe our unique competition system a great deal of thanks for that.

If I had to create a list of things that helped us through those first, worst stage of the crisis, I would say they are:

  • d irect enforcement powers

  • the right institutional set-up, within the European Commission

  • readiness through continuous reform

  • a functioning European Competition Network

  • a solid reputation

  • a willingness to ask tough questions

  • and a strong commitment to be consistent across Member States.

We cannot be complacent – but I firmly believe we are on the right track, and should not alter the fundamentals of our European model.

Annual Competition Report 2008

As you will have noticed in my earlier comments, one key message of the Commission that is in the Report is that the combination of firm principles with flexible processes is helping us through the crisis.

I am also very pleased to note that the move to project-based working at DG Competition assisted greatly in this work. As you may remember, there are now integrated staff working on merger, antitrust and state aid policies in the same sector. In the area of banking, for instance, this pooling of knowledge and insights has contributed significantly to the speed and quality of our response. This ability to focus deeply on an issue or sector will help us equally during the exit from the crisis.

Let me touch now on our various policy instruments.

State aid

Following the suggestions made in the Evans Report, the 2008 Annual Report contains more detailed and user-friendly information to Parliament about rescue and restructuring measures approved to combat the current crisis.

  • The importance of clear communication has also been noted more widely – with our clear guidance documents forming part of the key news in our crisis efforts: Guidelines on dealing with the impaired assets of banks, and the restructuring of the banking sector were agreed in February and July, respectively. We must now move forward with these plans.

  • We have extended until October 2012 our Community guidelines on state aid for rescuing and restructuring firms in difficulty.

  • We have also issued new guidelines on Broadband – so that public funds can be correctly channelled to the projects that will enhance Europe's competitiveness and deliver broadband access to all European citizens (September).

  • And simplified procedures for granting training aid to disadvantaged and disabled workers (June).

At times there has been pol itical pressure to suspend the state aid rules, but we have been very clear about the importance of competition for economic growth. Competition allows a better allocation of resources, protects consumers and taxpayers, ensures fair opportunities for SMEs and fosters innovation.

We also need to be clear that the financial sector was a special case. The substantial interventions in the financial sector should not be used as an excuse for massive state aid in other sectors. This is not because we care more about bankers than workers in other sectors. It is because the financial system is the lifeblood of our whole economic system.

Proper enforcement of EU competition policy in all sectors is key to ensuring a quick recovery of our economies without wasting taxpayers' money.

In terms of recovery – I wish to make some common sense points. I believe we are far from finished with the financial aspects of this crisis. And we will live with the economic effects for years to come, especially in terms of public debt. I agree with the OECD in that today's crisis policies must not endanger the recovery, or indeed the Single Market. I wish to assure the Parliament that while the Temporary Framework for state aid has served an important purpose, the Commission is committed to keeping it temporary in nature.

Antitrust and mergers

Many initiatives have also been taken in antitrust and merger control, such as:

  • the White Paper on damages actions for the breach of antitrust rules,

  • the simplified settlement procedure,

  • the guidance on enforcement priorities when dealing with abusive exclusionary conduct by dominant undertakings and

  • the revised Notice on merger remedies.

Sector inquiries

We are also now capitalising on our pharmaceutical sector inquiry with new cases. With the costs of an aging population (and threats like H1N1 flu), we cannot delay efforts to improve the functioning of this sector. It is important to note that a sector inquiry 'bears fruit' over a number of years – as those who have followed our energy cases will know. So please look out for further news in the coming months.

Cartels and consumers

The 2008 report includes a focus chapter, this time on Cartels and Consumers, in line with the priority that you have attached to the fight against cartels. The latest statistics are:

  • 34 undertakings fined a total of € 2.27 billion in seven cartel cases in 2008 – in sectors from bananas to car windows

  • 8 undertakings fined a total of €1.24 billion in two cases so far in 2009.

We have also worked to measure the harm caused by cartels. Mo re can be done, but as a start the Commission services looked at the 18 cartels subject to Commission decisions between 2005 and 2007. Using very conservative assumptions – an overcharge of just 10% - the harm suffered was €7.6 billion for these 18 cartels. The real figure is probably much higher. Based on research from the United Kingdom we also estimate that for every cartel discovered, five cartels may not have been put into effect or may have been abandoned. If this finding is applied across the EU it suggests that our cartel work is preventing tens of billions of euros of consumer harm.

Let me address here some of the criticism we have faced recently on fines and due process:

Fines and due process

Cartelists and other infringers hurt all Europeans. We need deterrent fines so that this harm is reduced in the future.

I sometimes hear the a rgument that high fines are pro-consumer and anti-business. I don’t agree with that. Firms also suffer from the higher costs if their suppliers form a cartel. Deterrence is also in the interest of all businesses that stick to the law – the vast majority.

Some fines are large – but they are always related to a company's turnover in the affected product or services and the severity and duration of the offence. Furthermore, they never go above 10% of the company's turnover. In fact four out of every five cartel fines, for example, are less than 5% of the company's annual turnover.

So while our fines are an effective deterrent – they are not arbitrary in any sense. Indeed they are essential to preventing tens of billions of euros of consumer harm each year in Europe. So with this information in mind, I urge you to examine the detail and not only the headlines around this issue.

Conclusions

We aim to keep the level playing field and increase consumer welfare, but I think our work has a wider value. It shows that strong but fair market regulation is possible; showing that those who cheat the system will be punished. This is an important message not only for other policy-makers, but for all the people of Europe.

And, finally, the Commission has achieved all of this at a cost of less than 100 million euros per year. Given our market impact and seen against the billions of euros of damage caused by cartels and market abuses, I think it shows the Commission's competition policy to be truly good value.


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