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European Commissioner for Competition Policy
Five years of sector and antitrust inquiries
Keynote a ddress at "Competition 09 Summit"
Brussels , 3 rd December 2009
Ladies and gentlemen,
I hope you've all done your reading on the new Lisbon Treaty text. While the substance is not changed, we will all need to be careful to switch off our Article 81 and 82 references and so on, and get on with the new names and numbers. For my part I will save confusion by keeping those references to a minimum today. Instead, I would like to reflect on some of our work at the Commission over the last five years this morning, with a particular focus on sector inquiries.
Retail banking sector inquiry
Turning first to banking - to our retail banking sector inquiry.
The crisis has taught us that many banks will need to redefine their business models; and it made clear that self-regulation and fragmented approaches to building a financial single market did not deliver the outcomes we needed as a society. In other words - the crisis showed us that the whole financial sector was not functioning as it should.
While limited in scope, our sector inquiry into retail banking - which we started in 2005 - gave us hints about this. A fragmented market; concentrations harming consumers in certain areas and self-regulation generally not fulfilling it's potential. Those hints, combined with the early learning we received from the cases of Northern Rock and the German Landesbanken, are two of the key reasons why we were able to respond so effectively from September 2008 and the financial crisis unleashed its full force.
In hindsight perhaps we should have investigated credit rating agencies also. I was shocked to learn, for example, that in 2008 those agencies gave triple AAA ratings to a mere 12 companies worldwide; at the same time they gave AAA rating to 64,000 financial products. It’s clear now that their sector wasn’t working as it should have.
In any case, the wider point is that we found problems in the financial sector and have put this knowledge to good use throughout the crisis.
Many banks are realising they need a greater focus on retail banking, and we have a better understanding of how to help them move in that direction. And we have continued to apply our new knowledge for the benefit of consumers. In particular I am thinking of our work to reduce Multilateral Interchange Fees (MIFs) spell out, and our support for strengthening the Single European Payments Area - SEPA - along pro-competitive lines.
In these debates the fear that one action or another will undermine the fragile and incomplete single market for banking is a regular theme. We hear that. Let me assure you - we want cross-border banking, and as a result of our sector inquiry we know much more about how to protect it and promote it.
The crisis also underlined the social importance of financial institutions. It is essential to avoid creating a banking divide between citizens, we must make sure that each citizen in Europe will have access to basic banking services.
One example worth mentioning is the case of the French Banque Postale, which has been given the task to provide these basic banking services to all citizens. I was very happy to see that increased competition through the ending of the exclusive distribution of the Livret A by only three banks was compatible with social objectives in terms of access to basic banking services and financing of social housing. This highlights that more competitive sectors can also bring social benefits.
Energy sector inquiry
Energy is another sector where increased competition delivers a range of benefits beyond economic ones.
I identified the need to tackle competition problems in energy markets as a top priority at the beginning of my mandate. This is because of the crucial importance of functioning energy markets for Europe's overall competitiveness and Europe's strategic goals of secure, affordable and greener energy. The continuing prominence of these issues in the second Barroso Commission is indeed confirmation that we were right to make this a priority.
But most importantly, I am delighted that the Commission has made concrete steps to meet this objective.
With five major antitrust decisions concerning the energy sector since we concluded the energy sector competition inquiry in 2007, I think it’s safe to say this has been one the most tangible successes of my mandate.
We identified serious competition problems, followed up successfully through cases. And more than that, our work served as a sound basis for drafting the third package of Directives to liberalise gas and electricity markets. The need to strengthen the rules on separation of supply and network companies was a clear message from the inquiry.
Regarding our case follow-up: The Commission has focussed on three general types of abuses in the electricity and gas sectors that involve the main areas of market malfunctioning:
This case work has also been ground-breaking for the type of decisions we have tended to aim for: commitment decisions. There are good re asons for this. The problematic behaviour we found tends to be long-standing and the companies tend to know it's a problem. So, when armed with the extensive knowledge of the sector that we built up on 2006 and 2007 it is, in these cases, relatively easy to find the evidence of wrong-doing and to challenge the companies.
Practically speaking the benefit of a commitment decision is clear: the economic damage is ended quickly and there are immediate benefits on the market.
We are seeing this already with, for example:
I can assure you these will not be the last examples.
If you will now allow me to contrast the energy sector with the more recent pharmaceutical sector inquiry you will see why patience really is a virtue when it comes to assessing the results of these inquiries.
This week is a good time to reflect on why we did the pharma inquiry. It was not to prove an arcane point about competition law: it was to address the sort of problems highlighted on Tuesday’s World Aids Day.
HIV / AIDS affects more than 50 million people, it has killed more than 25 million in barely 25 years. For many it is still a needless death sentence: one which functioning generic competition and an improved patent system could help address. The work of originator companies has no doubt played an important part in making the problems of AIDS less severe in Europe, but we need to exploit every possible aspect of competition to ensure the pharma sector can make use of its full potential
Indeed the positive impact of robust competition in the sector will only be greater as our population ages. So, for example, we have an obligation to look at the 200 settlement agreements between generic and originator companies that alter the functioning of the generics market. It might annoy some companies to answer our questions, but that’s a small price to pay for the wider effects our work can generate - not only in competition law, but in human terms.
And where we find problems specific to our mandate for action, we will act, as we have done by opening the case concerning Les Laboratoires Servier and some generic companies. The case deals with some unilateral behaviour of Servier as well as patent settlement (pay for delay) agreements with generic companies for the perindopril molecule.
In an ideal world and an ideal market we could leave the companies to simply look at the challenges of scientific discovery. But we don’t live in that ideal world.
After decades of looking at the possibility of a Community Patent it is still not in place, though we hope for an in principle agreement under this current Swedish Presidency. Fragmented patent litigation systems are another clear waste of everyone’s time. And the marginalisation of what amounts to equal rights for generic drugs continues to hurt us all.
So our p harma inquiry was overdue and essential, and we will keep pushing on the case front. And we may want to consider revisiting the issue of parallel trade in the pharmaceutical sector.
We are under no illusions that our work can solve the sector’s complicated problems. It is up to the sector itself to investigate all the ways forward. I read this week for example about global discussions on the creation of a ‘patent pool’ for originator companies to license their AIDS drugs to third-party companies in exchange for a modest royalty. This is one example of the industry thinking creatively about how to create new markets and save lives.
Whatever the case, if our sector inquiry can continue make a modest contribution to tackling these problems, it will have more than done its job.
Wider legacy points
Of course sector inquiries are just one of our weapons in the fight for a fair level playing field. And we are just one of 27 competition authorities making it happen.
That is an important point. If I have learnt anything in the last five years it’s that we need to work together to address competition problems. The successes of the ECN and ICN have meant more enforcement by more enforcers . The steps forward on private enforcement will mean more enforcement by more enforcers. And the renewed use of tools like sector inquiries has meant more success in pro-actively finding and solving competition problems.
At the end of the day, I would have loved to do more. But I would say strongly that we prevent billions in harm, recover billions in illegal aid and issues fines well above the 100 million Euros a year it costs to run the Commission's competition system.
And I think that through our bank interventions we could be leaving a strong example for others to eventually follow. While many are now focussing on the impact of Chimerica – the size and the imbalances of the Chinese and American economies - it should be noted that if they both lived up to Europe's state aid control, we would all be better off. That is what Europe can teach the world in this crisis.
So, whether this mandate is remembered for fines or banking or our big cases... I think it’s a strong record. A record that has left the Single Market in much better shape than if we’d left it to the wolves.
Conclusions - why must we continue with sector inquiries
If you let me conclude by returning to sector inquiries for a minute.
It's easy to ask why we need sector inquiries or to complain that they impose burdens on companies and individuals.
And if there are real problems, the Commission does want to hear about them. But the best question is whether the benefits outweigh the costs. I think you will agree the benefits are substantial.
No, you can't measure all of the benefits. Yes, these inquiries do take time and money. But how is that different from other investments? Sector inquiries need to be viewed as long-term investments. And, as such, it might take us 5 or 10 years before we know their full value.
We can see this point now by contrasting the continued momentum of energy sector inquiry with the emerging momentum of the more recent pharma sector. We see it in realising just how widespread the problems were and are in the financial sector. And we are already counting the results in terms of completed cases and applied learning.
We wouldn’t have any of that if we took the easy road; if we’d left it to someone else to ask the tough questions.