Fighting Fire with Fire: Fostering of A European Champion

Abstract

Countries have a financial interest in subsidizing companies originating from their respective territories to foster growth, enabling them to succeed against foreign competition, and attract further investment. However, this behaviour incentivises other nations to engage in a race of subsidies, distorting the competitive playing field, and leaving everyone worse off. For this reason, the EU has established internal market rules which prohibit the Member States from creating European champions, even when facing the subsidized foreign competition originating from outside the internal market. Following the Commission’s prohibition of the merger between Siemens and Alstom, the Franco-German manifesto was published. It protested the current approach and called for a number of reformations to enable the fostering of so-called ‘European champion’, subsidized European companies, which could compete equally against global competition.

In its latest competition policy review, the Commission emphasizes the importance of fair competition, enabling European firms to reach a sufficient scale in the face of global competition. This paper studies whether the Franco-German manifesto’s proposals are feasible in the light of the Union’s new competition aims and goals. It is found that fostering of a European champion is not strictly prohibited, making proposals regarding the timeframe and market definition unnecessary. However, the Commission’s restrictive view of the current rules de facto prevents its emergence. In light of the Union’s latest competition policy review, it is proposed that this strict interpretation may not be consistent with the current competition policy aims and objectives.