Vice President of the European Commission responsible for Competition Policy
Time for the Single Market to come of age
ANZSOG & EABC Competition Policy Conference & Lunch
Melbourne, 20 March 2013
Ladies and Gentlemen,
Let me start by thanking Allan Fels for his kind invitation.
I am very happy to be here today. This is my first visit ever to your country and I cannot imagine a better choice than this opportunity to address an audience interested in what competition policy can do for business and for trade relations between Australia and the EU.
The European Union has been Australia’s largest economic partner for over a quarter of a century, which is by itself a very good reason to speak before all of you about the situation of our European Single Market.
The rise of new economic powers in Asia and Latin America is transforming the global geography of business, but amid these transformations the EU is still the largest internal market in the world, home to 23 million companies and over 500 million people.
In spite of its might, the Single Market is just over 20 years old. For a person, it would be the time when you turn from a teen-ager to a grown-up. For a project involving 27 different countries, it is still a time of development and mood swings.
But the pattern of this development has been established by brave and visionary leaders six decades ago.
When – after World War II – our founding fathers were designing the architecture of a united Europe, they put an independent body – the European Commission – in charge of building the Common Market.
Almost three decades later and as the original Community of six members progressively enlarged to twelve – including, among others, the UK and Spain – the original Common Market gave way to the more ambitious Single Market. Few years later, at the end of the nineties, the European Economic Community would grow into today’s European Union.
Since the beginning of our process of integration, the European Commission was given the exclusive responsibility to keep equal and fair competitive conditions across the whole territory of the EU.
Thanks to this decision, the Commission can take executive decisions over business practices and government measures that can harm competition in the internal market and undermine its integrity.
Carrying out this task, the EU central competition authority – together with the 27 national competition authorities in the Member States – has preserved a level-playing field for every company that does business in the European Union.
And our task has never been more important than today, when Europe’s first order of business is re-launching its sluggish economy and creating jobs.
The most acute phase of the crisis is probably behind us. Europe is gradually consolidating its public finances and the pressure of financial markets has weakened. But there is still much work to do.
And developing the Single Market is one of our priorities because it contributes to increase the resilience and dynamism of our economy.
Companies and consumers should enjoy the benefits of a genuine internal market in key growth sectors such as energy, telecommunications, the digital economy, and services, which are still largely divided along national borders.
In this respect, the European Commission has been pushing to take the integration of Europe’s economies to a new level with two important initiatives – the Single Market Acts of 2011 and 2012.
This is today’s context for a nimble and robust enforcement of EU competition law. There is no doubt in my mind that competition policy can do a great deal for a rapid and sustainable recovery in Europe.
EU competition policy ensures that no country gives an unfair advantage to its companies through subsidies and public policies.
Competition policy promotes innovation; makes sure that every economic actor plays by the same rules; and keeps markets open and contestable.
Our action benefits consumers – of course – but it also creates better conditions for any company that intends to do business in Europe.
Today I would like to talk about how we pursue these goals using the different instruments at our disposal: antitrust, including our fight against cartels, the review of mergers and acquisitions, and our control of certain kinds of government subsidies in the State aid domain.
I will start with cartels. Adam Smith famously noted the tendency of companies to form cartels. He wrote that when “people of the same trade” meet “the conversation ends in a conspiracy against the public, or in some contrivance to raise prices”.
This quote is famous. Less well known is the next sentence: “It is impossible indeed to prevent such meetings, by any law which either could be executed, or would be consistent with liberty and justice”.
Well, Smith may have been right on the first point – although a bit too harsh on business people – but his second point is more debatable.
Let's see at our recent experience.
Since 2010, the Commission has taken 16 cartel decisions, involving overall 120 different companies or groups of companies.
This still does not show that we could prevent the meetings, but we surely sanctioned the illegal agreements they produced. And I can assure you that both the law and the way we enforce it are totally respectful of ‘liberty and justice’.
Our cartel decisions hit the headlines because of our fines. For instance, in May last year we imposed fines for close to €1.5 billion on seven international groups that had run two cartels in the sector of cathode ray tubes; of the kinds that were used for TV sets and computer monitors.
These fines serve two purposes; on the one hand, they punish what I consider the worst sort of anti-competitive practice; on the other, they send a signal to the companies that may be tempted to set up new cartels.
The power of deterrence of our fines is the strongest means we have to try and prevent more ‘conspiracies against the public’.
The rest of our work which, in our terminology, belongs with antitrust is about non-secret agreements and abuses of dominant position.
One example of anti-competitive agreements is the decision we took last December involving Apple and four top international publishing groups.
We investigated these companies because we suspected that a commercial clause they had agreed for the retail of e-books would restrict competition and keep prices high.
This case did not lead to a fine. We accepted instead the commitments offered by the companies to restore good competitive conditions in the market.
This solution is quicker and we sometimes prefer it to fines when, such as in this case, a market is young and dynamic.
As to the abuses of dominant position, perhaps the most well-known case here in Australia is the decision the Commission took against Microsoft in 2004, when the company had a near-monopoly in operating systems.
Under EU competition law, dominant companies must not abuse their position to thwart competition as it harms consumers and innovation.
A typical case of companies abusing their dominance is that of old incumbents in liberalised markets trying to protect themselves from the pressure of new competitors.
An example is the 2011 Telekom Polska case, where we found that this former monopolist had tried to prevent or at least delay the entry of competitors into Poland’s broadband market.
There were other cases in this sector in the past and we are currently investigating a similar practice in another EU country.
Sometimes, we also manage to solve the concerns raised by the unilateral conduct of some companies through legally binding commitments. Since I took office in 2010, we took such decisions in several cases related with the energy sector, but also in the field of financial services or even in basic industries.
Another instrument we use to preserve competition in the EU Single Market is our control of mergers and acquisitions.
Since 1990, the European Commission has the responsibility to review mergers that may have an impact in the Single Market; and it does so before they are finalised. This is what we call ex-ante control.
When two or more companies plan to combine forces and achieve a certain level of turnover in the internal market, they must notify their plans to the European Commission for review.
During my term – since February 2010 until now – we have reviewed 887 transactions; that is, just over 280 per year on average.
About 95 percent of them did not pose any threat to competition and we cleared them without conditions.
In 40 cases, our analysis could not rule out competition problems, but we managed to clear almost all of these deals when the companies came up with ‘remedies ‘ - normally divestitures - that would allay our concerns.
In just four cases the remedies proposed by the companies were just not good enough. This means that the deals would have significantly reduced competition, usually by creating or strengthening a dominant player.
So, I had to propose to the Commission the prohibition of these proposed transactions.
In the latest prohibition of the end of February, the Commission did not allow the low-cost airline Ryanair to go on with its plans to acquire the control of Aer Lingus – Ireland’s flag carrier.
At present these two companies compete against each other in a number of routes and the deal would have reduced choice and, most likely, led to higher fares on these routes.
State aid control is the last part of the competition-policy toolbox I would like to illustrate.
As I said in opening, our founding fathers gave to the Commission the task to take executive decisions over certain government interventions. This is a responsibility that no other competition authority has.
State aid control is a sizeable part of our work. We have taken more than 1,400 State aid decisions in the last three years, and in the vast majority of them we had no objections.
In one case every ten we opened formal investigations and in 33 cases we had to order Member States to recover the funds granted in breach of the rules for an overall amount of approximately €2.9 billion.
We need State aid control in Europe because subsidies and other government measures can distort competition and trade inside the EU and it is the duty of the Commission to ensure that this does not occur.
Of course, State aid is only a province of all government interventions. A subsidy or other measure becomes State aid only when it gives an advantage to companies on a selective basis.
In addition, some interventions are exempted from our control because we know that government action is sometimes essential for a well-functioning and equitable economy.
As a result, the Commission has built over the years a unique body of State aid rules to specify the terms in which we assess the compatibility of State aid with the internal market.
Last year, to respond to the current economic and social conditions in Europe, I launched a sweeping reform of these rules.
The State aid modernisation strategy – as we call it – aims to help Europe’s governments make the most of their investments to promote growth and create jobs in a period of budget consolidation.
The new rules will discourage waste; since Europe can no longer afford competition distortions or the harm done by unnecessary subsidies. At the same time, the new rules will be easier to comply with to reduce the administrative burden.
Ladies and Gentlemen:
I stated earlier that competition policy can create better conditions to do business in Europe and help relaunch our economy.
To illustrate this aspect of our work, I would like to stress our action in some sectors such as financial markets, telecoms and energy, which have a large potential for growth and are therefore among my priorities. I will start with financial markets.
When the crisis precipitated at the end of 2008, the European Commission was asked to keep the level playing field in the EU banking sector.
To do this, the rules that we use to control State aid were adapted to deliver on three basic goals: maintaining financial stability, safeguarding the internal market, and protecting the taxpayer.
Under these special rules, we have so far restructured 59 banks in the EU – equivalent to about 20 percent of Europe’s banking sector. In effect, our action has coordinated national responses to the financial crisis in Europe.
Other ongoing investigations in the financial sector include the so-called Libor scandal, where we suspect the existence of cartels involving a number of banks and brokers.
We are also looking into the market for Credit Default Swaps, where we want to make sure that a number of large investment banks have not prevented the development of trading platforms for CDS.
What most of our financial-market cases reveal is a worrying lack of transparency. As long as the industry remains so opaque, the temptation will also remain to flout competition rules. And when companies yield to it, the European Commission will intervene. The industry needs a genuine change of culture.
As to the telecoms sector, let me say that it illustrates well the need to complete the Single Market.
Telecom markets in the EU are still largely divided along national borders. Each Member State has its own regulatory environment and awards its own spectrum licenses. Not surprisingly, cell phone rates vary greatly from one country to another.
Clearly, our work in this industry is a priority. One example is the acquisition of the Austrian branch of Orange mobile by Hutchison 3G, which fell under our control of mergers.
We cleared the deal last December when Hutchison offered to make spectrum available and facilitate the access of virtual operators to its network. These remedies will keep the market open to new operators and to the companies that intend to build their own network in the future.
I will finish this quick survey with the energy markets, where – as in the telecoms industry – there are still quite a few barriers to remove.
We have a few investigations for suspected abuse of dominant position involving the old Czech electricity-supply incumbent ČEZ, Bulgarian Energy Holding, and the company managing Romania’s electricity exchange.
In addition, we are also investigating the business practices of Gazprom, which we suspect of preventing market integration of gas supply and of practicing unfair prices in Central and Eastern Europe.
Ladies and Gentlemen:
Today I have presented in a nutshell the instruments of EU competition policy and how they contribute to leverage the Single Market and help Europe’s economy become more open and competitive.
The Single Market is not only Europe’s economic masterpiece; it has also been our political masterpiece. It is the cornerstone on which we have built the edifice of our integration.
In this difficult passage for Europe, I am confident that we will turn again to the internal market to build our future together. And when this happens, not only the Single Market but the European Union itself will become of age.
I know that the deep reasons behind the stories and arguments I have presented today are shared by many of you.
Australia and the EU are founded on common principles. We both believe that a well regulated market economy is the best system we have devised so far to bring prosperity and social development.
We also believe that open and fair markets are among the pillars of our civic life and of our democratic systems.
On these bases, it is only logical that we shall intensify our relations and cooperation; both among competition authorities and beyond. Competition policy provides an excellent ground where our traditional partnership can grow.
Thank you very much for your attention and again many thanks to Allan Fels for his warm invitation and for giving me this opportunity to bring the views of the European Commission’s competition department to Australia.