Thursday, August 21, 2014

Politicizing EU Competition Policy

The new European Commission has been named. What should be its primary goals?

The Commission was originally created as a technocratic body relatively independent of either national or supranational control - correctly so, given its mandate. The Commission works best when it sticks to this role. Think of the excellent work it has done in the area of competition policy: breaking up cartels and stopping state aid, even when it comes in disguised forms, such as government guarantees on company debt.

The lesson is that Commissioners should focus on their specific tasks, bearing in mind the interests of the EU rather than those of their country of origin. Mario Monti, the successful Commissioner for Competition, happened to be Italian, but nobody ever accused him of pursuing an "Italian agenda." In fact, his fight against state aid clashed with normal Italian practice.

An innovation by current President Romano Prodi's Commission helped. Prodi's Commission decided to send Commissioners "into the field": their offices were no longer next to the President's office, but located in the department for which each was responsible. This forced Commissioners to concentrate on their jobs and keep an eye on the all-powerful director-generals and their bureaucracies; there was little time left for "big picture" politics.

But the new commission that Durao Barroso, Portugal's former Prime Minister, has appointed risks becoming imprisoned by the bureaucracy again. For one thing, Barroso has decided to bring his Commissioners back into the President's office. This means less control and direct oversight of the bureaucracy, and an increased incentive to spend the day thinking up big plans rather than concentrating on targeted improvements.

The problem is aggravated by the composition of the new Commission. There will be 25 Commissioners, one for each EU member country, whereas previously big countries had two and small countries one. Moreover, the new Commissioners will include three former prime ministers, five former foreign ministers, and three former finance ministers - all heavyweight people with big political agendas at home.

Consider Italy, where Prime Minister Silvio Berlusconi replaced Mario Monti, the Commission's most successful and effective member, with a politician enmeshed in the arcane games of Italian party politics. Berlusconi's interest is clear: he wants someone he can call and ask to look after Italy's interests - be it a forbidden government loan to Alitalia or some other favor.

There is also a Machiavellian explanation for the replacement of Monti. It is no secret that he irritated France and Germany. His latest decision was to force France Telecom to pay back with interest a loan granted years ago by the French government, in violation of EU rules on state aid. Germany never really accepted Monti's decision to bar government guarantees on the balance sheets of its Landesbanken, the powerful regional banks. The German government is also worried by the Commission's resolution to question the "Volkswagen law."

That law prevents any shareholder who controls more than 20% of voting shares in Volkswagenwerk GmbH (VW) from casting more than 20% of the votes in a shareholders' meeting. It also decrees that a majority of more than 80% of shareholder votes is required for important decisions in the company. The Volkswagen law also deters private investors from acquiring shares in the company, despite the principle of free capital mobility within the EU.

We do not know whether Chancellor Gerhard Schröder and/or President Jacques Chirac called Berlusconi to suggest that he find a new Italian Commissioner. Maybe they did, and maybe they didn't: one cannot know, especially at a time when Italy may need the full support of Chirac and Shröder as it tries to bail out Alitalia.

The bottom line is that with the new Commission members focused on their domestic political agendas, Durao Barroso's team will do less effectively what the Commission used to do well. At the same time, to the extent that the Commission becomes less a body of technocrats and more a political body, the so-called "democratic deficit" will increasingly become a problem.

The root cause of the problem is the new European constitution. By failing to limit the size of the Commission and accepting the one-country/one-commissioner rule, the Constitution has turned the Commission into a body of national representatives. This, together with the rule that all decisions, even in the area of state aid, must be approved by a majority of Commissioners, suggests that the Commission is set to become much more lenient on state aid and competition policy.

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