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Joaquín Almunia

Vice President of the European Commission responsible for Competition policy

The past and the future of merger control in the EU

Global Competition Review's conference

Brussels, 28 September 2010

Ladies and Gentlemen:

It is a pleasure to open this conference and celebrate with you twenty years since the introduction of the landmark European law on merger control.

I believe that there are many good reasons to celebrate. The Merger Regulation was a significant advancement for competition enforcement in Europe and a boon for our single market.

As is often the case, the regulation was the product of a collective effort and a long negotiation – about 15 years long, in this case.

The breakthrough came with the Philip Morris judgment the European Court of Justice passed in 1988, which changed the mind of the most reluctant Member States.

I would like to acknowledge at the outset all the people who made the regulation happen, but they are simply too many to be named here.

But I will recognise in particular the contribution of those who were most active in the final round of negotiations of 1989, notably Sir Leon Brittan, then Commissioner responsible for competition, and his then Director-General Manfred Caspari.

Therefore I am very happy to be with you today also because this conference gives me an opportunity to share my views on the state of play of merger control and on the challenges ahead.

I would like to start by presenting a brief overview of merger control in the EU, focussing on its main achievements and its evolving nature.

I will look, among other topics, at the introduction of economic analysis in our decision process.

I will also refer at the so-called European champions, an issue that never seems to exhaust its power to cause debate in our circles.

Finally, I will look briefly beyond merger control at what the future holds for competition policy.

General overview

Let me start with a bird’s eye view on merger control.

As you know, the basic idea behind centralised merger control at EU level is that all mergers with a significant cross-border impact must be cleared according to a uniform set of rules before they take effect.

I believe this is good for companies and for our fellow European citizens alike.

It is good for the business community, because we provide a one-stop-shop which keeps down regulatory costs. The changes to the referral system that we introduced in 2004 have made this even more effective.

It is good for the economy in general and for all Europeans because those mergers that do not distort competition can generate the efficiencies and economies of scale which are needed to compete on global markets.

The Merger Regulation has clearly delivered on both counts over the past two decades. One mark of its success is that it has become a model for many national regimes.

Twenty years ago, only a handful of EU countries had merger control. Today, all but one (Luxembourg) have adopted their own merger control laws to analyse deals that do not qualify for review under the one-stop-shop regime, and many of these laws are tailored on the Merger Regulation.

The historical trend that emerges from the almost 4,500 cases we have examined under the regulation is one of constant rise with two dips: between 2002 and 2004 – after the dot-com bubble burst – and over the past two years.

In 1990 – the first year of application of the Merger Regulation – the Commission received 11 notifications; five years later, we were already analysing 110 cases. In 2007 we received 402 notifications – which was our all time high.

Obviously, the numbers have dropped in the last two years due to the economic slowdown, with only 259 cases in 2009.

For the current year, we forecast a stabilisation or perhaps a slight increase. This is due mainly to continued merger and acquisition activity in air transport and the pharmaceutical industry as well as in the ICT and energy sectors.

These figures show that European companies maintain their historical drive towards cross-border deals, even in difficult economic times, taking advantage of the single market.

An evolving system

Ladies and Gentlemen:

EU merger control has been one of the most dynamic domains in the competition portfolio. The system has evolved significantly in the last 20 years around three main principles.

The first principle is that merger investigations must be efficient, consistent, transparent and in full compliance with due process.

Second, when a merger poses significant competition concerns, the remedies must be apt to fix effectively the problems identified.

Third, enforcement action must be firmly rooted in economic theory and based on solid evidence.

I would like to say a few words on the latter.

  • Economic analysis

We take economic analysis very seriously in our competition policy decisions.

It has become a much more integral part of our work since the introduction of the Chief Economist position in 2003.

Damien Neven and his people are not only called upon to look at individual issues – such as the definition of a market. They have a much broader role, from the very start of a case.

They work as part of the case team on the theory of harm, use quantitative techniques to simulate competitive effects, and evaluate qualitative data. These are all tasks that can be very challenging especially given the tight legal deadlines set in the EU Merger Regulation.

Apart from our Chief Economist and his team, DG Competition employs roughly one economist for every two lawyers. To give you an idea of the ground we have covered, in the early 90s the ratio was 1 to 7.

In essence, the goal of integrating economic analysis in merger control is seeing where the balance lies between the adverse effects that mergers may have on competition and the market efficiencies they may lead to.

The progress we have made in our ability to assess mergers is, I think, remarkable and this is acknowledged by competition experts from around the world.

  • Other achievements

As an economist by training, I don’t need to tell you how much I value this approach, which I consider one of the main achievements of EU competition enforcement over the past few years. But it’s not the only one.

Over time, we have come to develop a productive relationship with the business community and prospective merging parties in particular, which yields positive and concrete results for both sides and for consumers.

Most of the mergers notified to the Commission are cleared only after an initial review of roughly five weeks.

A grand total of 94% of the cases we reviewed were cleared without conditions and many of the remaining 6% were also granted regulatory approval after the companies addressed our concerns.

Over time we have developed a preference for structural remedies, generally divestments, as opposed to behavioural ones. This is because they solve the problems in a clearer way, and without the need to monitor their behaviour.

This productive dialogue between competition enforcers and the business community has also generated a broader preventive effect.

Companies that are planning a merger or a takeover nowadays tend to design their proposals to avoid regulatory problems that they are more aware of thanks to the detailed guidelines and notices adopted by the Commission and regularly updated.

Finally, it goes without saying that the single most important achievement of merger control has been maintaining undistorted competition.

I am fully aware that mergers are often part of much needed restructuring moves in certain industries – I will come back to this point later – but restructuring should never come at the expense of competition.

For instance, no restructuring should raise barriers around a market, or reduce the incentives to innovate.

  • Ryanair/Aer Lingus

To illustrate how these principles work in practice, I would like to give you the example of one of the rare cases where we took a prohibition decision: the proposed acquisition of Aer Lingus by Ryanair. This was also the first time an airline merger was prohibited by the Commission.

The 2007 prohibition decision was motivated by the concern to prevent a dominant position and because the evidence of the claimed efficiency gains was too weak. The takeover would have created an air carrier with about 80% of European short-haul traffic to and from Dublin.

Last July, the General Court upheld our decision and showed that it was prepared to assess our approach in detail, looking hard at the economic assessment, and confirming the validity of our approach.

Most importantly, the case shows how our competition-enforcement system – which includes both the Commission and the Courts – has protected the interests of air travellers, who would have had less choice and would have been exposed to a high risk of price increases.

European Champions

Ladies and Gentlemen:

As announced earlier, now I would like to say a few words on the relation between merger control and the need for scale and integration that arises in many industries.

What is merger control for? In a nutshell, merger control means that companies cannot simply avoid competition by buying their competitors.

When our analysis concludes that there is no competition problem, I am the first to recognise that mergers and acquisitions are an important part of a healthy economy and I will make sure that competition enforcement does not stand in the way of the emergence of European companies capable of competing on the world stage.

I can think of many examples of global and European champions cleared by the Commission:

Glaxo/Smithkline in 2000, which led to the creation of the world's largest pharmaceuticals firm;

GdF/Suez, approved in 2006 after the parties offered remedies that included investments that would facilitate the entry of new competitors and foster competition;

Finally, last July we decided to clear the German SAP's acquisition of Sybase without conditions, which created a global provider of software, databases and mobile technologies.

So, there is ample scope for pro-competitive mergers and for strong European companies to grow. But I will intervene quickly and vigorously whenever the European economy and the interests of consumers are threatened.

Eliminating competition at home will never provide companies with the strength they need to compete abroad. In fact, we would harm not only final consumers but also their corporate clients, especially SMEs.

Allowing large companies to extract higher rents on their European customers would translate in a loss of competitiveness for our economy – and we cannot afford this.

In sum, there is no doubt in my mind that we can find a good balance on merger control: we can both protect consumer welfare and create the right conditions for business in Europe.


Ladies and Gentlemen:

Much work has been done in the past few years to make EU merger control more effective, more efficient, and more transparent.

Compared to the early days of the Merger Regulation, the role of the Commission as an enforcement body and policy maker has evolved.

The way companies think about merger control has evolved too; today, they are more aware of the importance of competition policy and see its benefits for themselves and for the business environment.

But we should not wait and see; we should always strive to improve the way we scrutinize mergers and more generally how to shape EU competition policy.

One aspect I regard as a priority is our cooperation with competition authorities in the Member States. We have seen a number of significant referrals in recent months – both to the Member States and to the Commission – and we are strengthening collaboration with national authorities.

The report Professor Monti presented last Spring has an interesting passage on this issue. The report speaks of “an interest in moving towards a greater convergence as regards how mergers are assessed on the substance and the review process at national level”.

I fully agree with this: we have to be mindful of differing national traditions, but also mindful of the need for business to have legal certainty.

Even without further changes in the law, there is much we can do. We are working within the network of national authorities to strengthen co-operation and develop a common understanding on cross-cutting issues of merger control.

The goal, again stated in clear terms in Monti's report, is to give Europe a modern industrial policy built on EU competition rules. The report also reminds us of the need to strengthen the single market as a means to achieve our economic and social goals. And competition policy can help us do just that because it’s about tapping the potential of the single market.

Enforcing competition rules is a means to establish a business environment that promotes efficiency and innovation in Europe. It is also a means to take us out of the crisis faster and in better shape.

In the aftermath of the recession, many European countries are making painful budget cuts and are scrambling for fresh revenues.

In my view, this is the perfect time to turn at the single market with renewed confidence.

This is the time to extend and deepen the single market and remove the remaining obstacles.

This is the time to recognise competition policy as the cornerstone of an effective economic policy for the EU.

Thank you.

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