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Joaquín Almunia

Vice President of the European Commission responsible for Competition Policy

Unleashing Europe’s potential for growth: The role of competition policy

Competition Summit 2011

Brussels, 1 December 2011

Ladies and Gentlemen:

Looking at your programme, I can see that no serious discussion of competition control these days can ignore the uncertain financial and economic situation that is holding the euro area, Europe and the world in its grip.

We cannot hide the truth; dark clouds are gathering over the EU and our common currency. The negative spill over reaches the other side of the Atlantic and beyond.

We are in the middle of a financial crisis whose implications are potentially fatal;

  • the financial markets remain very nervous;

  • Europe’s economic outlook is deteriorating; and

  • a growing number of Europeans are feeling the painful effects of the austerity measures without being rewarded so far with growth and jobs.

In this juncture, all national and European leaders must come together; coordinate their strategies; and take bold action before the situation gets out of control.

The most urgent task is boosting investors’ confidence in the sovereign debt and in the euro. There is no magic bullet. To reverse the trend, we will have to mobilise all our resources and use a broad array of policies with a common sense of purpose at national and European level simultaneously.

Among these policies, competition has been of primary importance for Europe’s response since the financial crisis erupted over three years ago.

Take for example the emergency State aid rules to control and coordinate the public bailout of banks that were introduced as early as October 2008.

As the crisis – in its different forms – continues to beleaguer us, competition policy remains of crucial importance.

Our economic and financial problems will ultimately be solved only when we are able to generate wealth.

We must ensure that the European Union is an economic area open to opportunities, which promotes innovation and the entry of new firms.

By that I mean generating products and services that the world wants and is willing to pay for.

Today, I would like to tell you how competition policy will help us to achieve these goals and put our economies back on track. I will touch upon three main topics.

Later today I will announce the extension into 2012 – with amendments – of the State aid rules we use to control and coordinate the public support of banks. So, I will open my presentation with a general overview of these changes.

Then, I will give you an account of how an effective enforcement of competition law can help boost growth and competitiveness in the Single Market in these dire times.

But keeping the internal market open and without barriers is not an end in itself. In fact, I believe that the true beacon of our work must be the wellbeing of our fellow Europeans. I will therefore close with a few words on the impact of competition enforcement for Europe’s consumers.

Since the collapse of Lehman Brothers, EU governments have invested huge resources to avert the collapse of the financial system; stabilise the markets; and maintain credit flows to the real economy even in the darkest hour.

The large amounts of aid granted by governments had to be kept under strict control, otherwise we would have seen huge transfers of capital from one country to another and probably the end of the internal market as we know it.

This is what our emergency State aid rules have achieved. In spite of the recent tensions, they have been a great benefit to financial and economic stability throughout the crisis, controlling the conditions under which the aid has been given.

I would have liked to return to a normal regime after three years; but we are not out of the woods yet. The sovereign-debt crisis is still affecting the capital and liquidity of banks. As a consequence, the wise decision was to extend the crisis regime into 2012.

However, we have also introduced a few changes and clarifications to our rules to adapt them to the current conditions.

Firstly, we have explained in detail how the existing principle of remunerating the state for the capital received will be applied to recapitalisations taking the form of ordinary shares.

Secondly, we have adapted the pricing formula which determines the fees which banks need to pay for the government guarantees on their liabilities, in order to better reflect the underlying risk for the bank and therefore better protect the taxpayer. At the same time, we are adapting the pricing so that the fee reflects the market value of sovereign guarantees.

These rules will facilitate the implementation of the banking package on recapitalisation and term funding guarantees adopted by the EU heads of states or government on 26 October.

These are some of the changes that I will present in full detail to the press later today. They are part of the Commission’s efforts for stability and the recovery. Now it is the turn of national governments to respond to the debt crisis with adequate measures.

When this happens and investors regain their confidence, we will adopt a new Rescue and Restructuring regime for financial institutions, adapted to normalised market conditions.

I believe that the urgent task of stabilising financial markets must not distract policymakers from longer-term goals.

Regulatory and enforcement authorities must work together to prepare the ground for the post-crisis financial landscape; which must be more stable and more transparent and must return financial services to their traditional function of financing the real economy.

Boosting growth and competitiveness

As a response to the sovereign-debt crisis and this loss of confidence, national governments are taking painful austerity measures to improve their fiscal positions. How to compensate this reduction in internal demand to sustain an adequate level of economic activity is one of the debates still to come in the euro area.

At the same time, we need structural changes to restore potential growth. Europe must address the challenges that have produced decades of declining competitiveness vis à vis its global partners.

This is the second broad topic I would like to talk about today. Although the European Commission has proposed many measures to contain the immediate effects of the crisis; I believe that the core of our action should remain the pursuit of sustainable growth in an open, innovative and integrated internal market.

Competition policy is absolutely crucial in this respect. Our control of competition in the internal market and the initiatives that we take to update and improve our policies are crucial to boost economic efficiency and promote innovation.

Fair and robust competition rules mean – among other things – integrating those markets which, in practice, continue to operate at national level; promoting innovation; encouraging the restructuring of mature European industries; and fighting against protectionism. Let me say a few words on these issues.

Tearing down the barriers that fragment the Single Market is a fundamental goal of the EU; one that provides scale and opportunities to all European companies and brings benefits especially to SMEs.

The discipline imposed by a genuine Europe-wide, competition-friendly market is the best tonic for business; it promotes efficiency and prepares European firms for global competition.

Regulatory barriers between Member States have been progressively dismantled, but the work is not always over when a barrier is formally brought down.

Competition control is there to ensure that firms do not raise new de facto barriers and that the internal market is actually integrated in practice.

Take online distribution, for example, where some manufacturers are still erecting artificial barriers to cross-border trade to prevent their distributors from selling to customers across the EU.

The recent judgement in the Pierre Fabre cosmetics distribution case is a reminder that partitioning the Single Market is against the rules.

Another example is that of cards and electronic payments.

Today, the payments market within the euro area is highly fragmented between the different countries.

In many EU countries, the traditional national schemes are being replaced by international card schemes – such as Visa, MasterCard and American Express, but the interchange fees remain very different from one country to another and there are separate fees for cross-border transactions.

Our intervention has already brought down the cross-border fees of MasterCard and Visa and of certain domestic fees applied by Visa. But there is still a lot of work to do. We are planning to publish a Green Paper soon to launch a comprehensive debate on these issues.

I would like to point out another aspect. The fragmentation of this market also hampers the development of innovative systems, such as internet and mobile payments.

There are already some national systems that use the concept of internet banking to make quick, secure and cheap payments.

In principle, this kind of service can be provided by non-bank operators, but the banking industry is developing standards that may have the effect of excluding them.

To look into this matter, we have opened a case against the European Payments Council, the banking industry body in charge of the project.

We will see what our investigations can find, but one thing is sure; the standardisation process must be fair, open to all players, and it must promote innovation.

Let me add that the potential to use technical standards to prevent the entry of new players or to extract a monopoly rent is not limited to any one industry such as banks. In the next couple of weeks we will also open a case on standards in another industry.

Competition policy is also an effective tool for fostering innovation, which is the basis of high sustained growth in the long term.

Nowadays, in the advanced economies, innovation means knowledge. The knowledge economy relies on ideas, and intellectual assets have never been more valuable.

We want to make sure with our control that Intellectual Property Rights are used to reward inventions and motivate innovation, not as tools to foreclose access or expansion in markets.

Recently we have seen a rise in the strategic use of IPR. Take for example the mobile communications industry, where it seems that everybody is suing everybody else for patent infringements, often to block certain products from entering the market.

I have instructed my services to look closely into how intellectual property rights are used; for instance, we have recently asked Apple and Samsung to send us information on their patents for smartphones.

Our enforcement practice has also taught us that IPR strategies may be a concern also in the pharmaceutical industry.

In addition, we will soon be launching a stakeholder survey on the operation of the current antitrust regime of technology transfer agreements, which will expire in 2014.

An important issue will be to assess whether innovation is being properly disseminated to industries and consumers under the current regime.

But promoting innovation goes beyond our control of standards and intellectual property rights.

Last week, for instance, we cleared the acquisition of Hitachi's hard disk drive business by Western Digital subject to conditions.

The global markets of hard disk drives for desktop and consumer electronics are already highly concentrated.

So, to maintain healthy competition in the industry, we cleared the deal on condition that Western Digital sells a viable business to a third player before completing the acquisition.

Our purpose in all these cases is to ensure that new challengers can operate on the markets and provide sufficient alternatives to industrial customers, and ultimately consumers.

This has the double effect of promoting the innovative solutions often brought by the newcomers and of forcing the incumbents to respond in kind.

The next aspect of our work I would like to stress is the impact that competition policy has on mature and declining sectors to keep them producing at potential and – if needed – to accompany them in their restructuring processes.

In mature sectors, firms may be tempted to collude against their customers – by fixing prices or through other strategies – to protect their rents.

Of course, these are costly arrangements for us all, because they thwart an industry’s potential to restructure itself and slow down the whole economy.

They also substantially affect the competitiveness of our firms – especially of SMEs – which must source essential raw materials and inputs at good prices to be competitive and expand in the EU.

Our fight against cartels is the clearest example here.

Regarding the support to the structural change in declining industries, next year I will propose new State aid rules for the rescue and restructuring of industrial firms.

The new rules will be designed to give more incentives to market-based solutions as an alternative to government subsidies.

In sum, apart from preventing established firms from shutting out dynamic and disruptive innovation, competition policy can also promote growth-friendly public investments.

I would like to end on a critical note. Competition authorities do not always enjoy a good press these days. For some, protectionism seems to be the best response to the economic downturn and to the mounting pressure from emerging markets.

I completely disagree with these views. Protection from competition at home is a recipe for disaster on the world markets. I will strongly oppose any kind of protectionism during my mandate.

There are no options, really. Those who think there is an alternative path towards a competitive economy should revisit what went wrong during the third decade of last century.

Now that our economy is fully integrated on a global scale, only an open but fair relationship among the new economic giants of the world will bring benefits and opportunities to all.

It’s all about consumers

Ladies and Gentlemen:

I will now turn to my last topic; the benefits that competition control can bring – directly or indirectly – to consumers.

Let me explain what I have in mind with an example. Last June we imposed a €127 million fine on Telekom Polska for abusing its dominant position in Poland.

The company is the dominant national player and was obliged to give other operators access to its network and wholesale broadband services.

However, we found that the company had effectively excluded other operators for over four years and was fined for its anti-competitive conduct.

What does this mean for Polish consumers in practice? Because of the company’s conduct, they have probably had a poorer choice of services, higher retail prices, and little innovation.

After our decision, I expect that Polish families will spend less to use the Internet and get a better service.

These considerations apply to many of our cases. In other words, in competition control we can often see what Europe can do for us; and this is important not only for practical reasons.

This is one of the policies of the EU that the people can experience first-hand; a policy that brings Europe and its institutions closer to the citizens.

We carry out our control with extreme care; we use the best economic and legal expertise. But our real purpose is protecting the interests of our fellow European citizens.

This is the only thing we have in mind when we break up consumer-goods cartels – such as in bathroom fittings and detergents.

This is what guided us when we asked Microsoft to tweak its technology so that it would be easier for us to use our browser of choice.

Today I have talked about the special relevance of competition policy in the current stage of the financial and economic crisis in Europe.

I have referred to the new rules that we will use as of next year to control the public support of banks in distress.

Then I have shown how competition control can boost growth and competitiveness and the impact it can have for us all in our everyday life.

In closing, I would just like to emphasise that protecting the integrity of the internal market is more important than ever in these difficult times.

Over three years into this crisis, some people are starting to point their fingers not only towards their national leaders but against the EU as well. They are starting to think that the euro and the Union as among the causes of their pains.

These are misguided views. We need to convince the public opinion of the key importance of maintaining and reinforcing our common project.

I have tried to show you that Europe is in fact part of the solution, not of the problem. This is why it is now crucial that – after months of debates – national and European leaders come together and take decisions that stick.

There is not a moment to lose. The euro and the internal market have made us a force to be reckoned with on the global stage and – once again – they must be our main engines of growth and the pillars of our prosperity. Thank you.

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