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Joaquín Almunia

Vice President of the European Commission responsible for Competition Policy

How competition policy contributes to competitiveness and social cohesion

Europa 2011 - Regulação e Competitividade

Lisbon, 14 January 2011

Senhoras e Senhores,

Muito bom dia,

Let me start by thanking the conference organisers for giving me the opportunity to come again to Lisbon and address such a distinguished audience. It is always a pleasure to be back in Portugal and see so many familiar faces.

It is also with emotion that I recall that 25 years ago this January Portugal and Spain joined the European Union, relegating to history the dictatorships that not only denied their people the basic democratic rights but also the economic prosperity that the EU and its members had on offer.

Portugal and Spain have benefitted hugely from EU membership and will continue to enjoy the benefits brought about by a community of 500 million that together is far stronger than the sum of its parts.

I know the situation does not exactly look rosy right now, as we are still mired in a difficult economic situation. This crisis brought about by the failure of key financial markets has created huge challenges in terms of putting our public finances on a healthier footing and, at the same time, improving competitiveness through structural reforms to increase our growth potential and reduce unemployment.

But together, in Europe, we stand a better chance of improving the situation more rapidly and durably. The crisis would have been a lot worse and more socially painful had we been outside of the euro and outside of the EU. Coordinating our responses with the other Member States gives us a better chance of success than if we act in isolation.

The reforms being put in place to improve the economic governance of the EU and to prevent similar crises in the future will make the euro area and Europe more solid and stronger. I will come back to these reforms later.

Competition policy, my present domain of responsibility at the Commission, also plays a huge role in increasing the competitiveness of our companies and our economies, creating jobs and a better welfare for our citizens.

Ladies and Gentlemen:

My views on the EU are consistent with my vision of its competition policy, for which I can see three main goals:

  • strengthening our social market economic model;

  • protecting the integrity of the internal market; and

  • increasing the competitiveness of Europe’s economy.

I would like to explain these points in some detail.

Competition policy and the social market economy

Our competition policy is the expression of the model born in Europe after World War II and known as ‘social market economy’.

Competition policy, contrary to what some think, is not about neo-liberalism or the jungle. Its purpose is completely different and positive. Competition policy in Europe is about encouraging entrepreneurship and innovation, the creation of jobs and the placing in the market of innovative products and services that bring choice and competitive prices for the consumer. The role of competition enforcers is to make sure companies play fair, do not gain excessive power and when they acquire power through organic growth, not to abuse it.

Competition policy, therefore, has a regulatory role and this role is essential to preserve a social economy and social fairness. Nobody loses more when companies fix the price of essential components for windows, for example, than modest-income families who invest in making their homes better insulated and energy efficient. This is why the fight against cartels is and will remain my number one priority.

To apply a phrase coined by Karl Schiller, a German minister during the late 60s, early 70s, competition policy is about “the market when possible, the state where necessary”.

This can be seen, for instance, in the work of the EU to promote a digital economy, which is crucial to increase productivity growth and job creation.

We have set the goal at the EU level to develop high speed broadband and in many European countries companies are investing billions to upgrade their networks and bring us faster connections.

However, this large infrastructure upgrade could not be left entirely to the market as private companies would most certainly privilege investment in urban centres and affluent areas.

The European Commission has made it clear that everybody must be able to benefit from the development of the new technologies and for that these must have a universal coverage. There can be no question of opening a digital divide between urban and rural or remote areas. Public authorities must intervene to establish public service obligations ensuring that all citizens and businesses have access to high speed broadband as well as encourage or complement private funding for the development of the necessary infrastructure.

In 2010 alone, after the EU set itself ambitious targets for broadband development in its EU 2020 strategy and in the Digital Agenda, the Commission approved, under our State aid rules, a record €1.8 billion in national subsidies. Portugal itself notified to the Commission an ambitious programme which envisages major investments in advanced broadband networks that will also contribute to addressing the country's economic challenges. My services have examined this thoroughly and I expect the Commission will be able to give its blessing shortly, possibly next week.

This is one example of how competition policy seeks to balance the free functioning of the market and public goals.

There are many similar examples in which a market economy approach is combined with instruments to promote social cohesion. And this is a successful model.

Competition policy and the internal market

The second aspect of competition policy I would like to illustrate is its role as guardian of the internal market.

We must not forget that the internal market is a strategic asset for the EU and for each one of its members. But we have not completed this task yet.

Online commerce, to draw one more example from the digital economy, is a case in point.

The EU market for online rights management is fragmented; cross-border transactions are difficult; and online payments could use more innovative methods.

A lot is at stake as the digital single market could bring a 4% GDP gain to the EU by 2020, comparable to the impact the internal market programme had back in 1992.

The same applies to the services market.

Competition rules give us very useful tools in this respect. For example, we can sanction cartels and other private agreements that partition markets along geographic borders. We also tackle commercial restrictions that have the effect of preventing intra-EU trade.

In doing so, we make sure that the huge scale and potential of the internal market is efficiently used by companies to grow, to innovate, and to become more efficient to the benefit of consumers and citizens.

Competition policy and competitiveness

And this brings me to the relation between competition policy and competitiveness.

The discipline that fair and effective competition rules imposes on European companies increases their competitiveness and equips them to take on their global competitors.

Europe badly needs to increase its growth potential and the dynamism of its economy and competition policy plays a big contribution to this.

The belief that protecting our businesses – especially from non-European companies – can make them more competitive is plain wrong and ultimately dangerous for our economy.

The best example is merger control. Many mergers that the Commission has approved in recent years show that respecting competition rules in Europe is fully consistent with the rise of world leaders.

When we examine mergers and acquisitions, we do so regardless of where the capital or business in question comes from.

Our task is not to prevent non-European companies from buying European ones, and for at least two good reasons:

  • First, because it would ultimately reduce vital investment flows into the EU;

  • Second, because we would lose our moral high ground; how could we then defend the right of European companies that wish to expand their businesses outside the EU?

International cooperation

One final word on our relations with our trading partners. We have an active cooperation programme with competition authorities around the world.

The goal of this work is to promote the convergence of competition rules and of their enforcement because in our borderless global economy the level playing field must have no borders.

And the best way to preserve this level playing field across the world without giving up to protectionist temptations is to advocate at a global level in favour of the same competition principles and rules that allowed Europe to become the leading trade power in the world.

European Semester

Ladies and Gentlemen:

I would like to finish with the European economy.

The European Commission this week adopted the Annual Growth Survey, the first document of its kind that marks the start of the so-called European Semester, the new mechanism to improve the coordination of economic policies in all the countries of the EU.

I cannot overestimate the importance of this initiative; it is innovative, it is timely, and it will give the EU – and especially the countries in the euro area – a key tool of economic governance at European level.

The European semester consists in a six-month cycle in which each Member State will work on its budget strategy and structural reform programme on the basis of the challenges they have previously identified together. Crucially, next July the Council will give policy advice to all Member States before they pass their budgets for 2012.

The European Semester rests on three pillars:

  • coordination of budgetary policies;

  • national programmes for the implementation of structural reforms; and

  • a European perspective, which includes the decisions and actions to be taken at EU level to boost growth.

The first two pillars respond to two challenges that, taken together, weigh down Europe’s economy in the wake of the crisis.

  • The recession has drained public coffers and practically all Member States are taking serious measures to cut their public deficits and debt levels.

  • The other sad legacy of the crisis is sluggish growth and unemployment, which has risen to shocking levels in some parts of Europe.

To tackle this double challenge and boost competitiveness, Europe’s countries need to consolidate their public finances and frontload wide-ranging structural reforms. And there is not a moment to lose.

As to the third pillar; what can we do at EU level to restore confidence in Economic and Monetary Union, address our internal macroeconomic imbalances, and boost growth?

The first, strategic answer is tapping the potential of the single market to the full. This would allow companies to make use of scale economies and would give them larger incentives to innovate.

It goes without saying that a robust enforcement of EU competition rules is a precondition for this strategy to work in practice.

Among the initiatives the Annual Growth Survey puts forward, I would like to mention Europe-wide measures to reduce the segmentation of e-commerce and to create a European framework for intellectual property.

Before I conclude, let me answer a question that I’m sure many of you are thinking about: What does this all mean for Portugal? The answer is that the Annual Growth Survey should be read as an encouragement to press forward with a national agenda that balances fiscal consolidation and reforms.

Putting public finances in order is a priority, but this should not come to the detriment of the structural policies needed to address the longer-term economic fundamentals and to raise potential growth.

Competition policy can help Portugal and its companies advance along this path. Given that your economy has one of the highest degrees of export-market concentration in the Euro area – about 80% of its goods and 77% of its services exports go to other EU countries – it is essential that the single market remains open and competition fair.

I have no doubt that Europe will find a way to overcome its present challenges. Historically, we have always rebounded from our crises by bringing our integration to new levels. I can see no reason why history should not repeat itself this time around.

And I am also sure that Portugal will stake its claim in the global age thanks to the opportunities provided by its membership in the EU family.

Thank you.

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