Neelie Kroes
Member of the European Commission in charge of Competition Policy

One Year In: Continuity, Concentration and Consolidation in European Competition Policy

Speech at the IBA's Ninth Annual Competition Conference
Fiesole, Italy, 21st October 2005

Ladies and Gentlemen,

Thank you for inviting me to address you today. This is the International Bar Association's ninth Competition Conference.

Florence, and more specifically the European University Institute here in Fiesole, is the perfect destination for this annual pilgrimage of lawyers, competition practitioners and regulators, as well as academics.

It is my pleasure to be here to open your discussions for the first time this year, in accordance with what is now - happily - a now well-established tradition.

I have heard it said that a year is a long time in politics. That may well be the case. But as you know, the European Competition Commissioner has two jobs - politician, yes - but also regulator.

A politician like any other member of the College, responsible for designing the best possible policy solutions to fill defined objectives in the overall interest of Europe's people and businesses. A regulator like many of you, responsible for the fair but firm application of the competition rules in day to day practice.

With this as a mandate, I do not need to worry about my days (or nights) becoming too long!

Indeed, I'm a bit more bothered about the fact that there are only 49 months of the current Commission's mandate left. And - if I dare say it - that is even before thinking about holidays.

The Lisbon agenda and the contribution of competition policy

Recent developments in the global economy prove that delivering the renewed Lisbon goals has never been so pressing. Faced with slow growth, lasting budget deficits, high unemployment, poor productivity and aging populations, getting Europe back on the right economic track has to be our top priority. Many of the Lisbon reforms have to be delivered at national level. But the Commission too has its part to play. The policy area I am responsible for - competition - provides a series of tools which must be used to support economic reform.

In every job there are pros and cons.

Being in a position to contribute to rebuilding Europe's economic growth base and our potential for social and environmental sustainability is most definitely a pro.

Helping create a business landscape which allows European companies to go out, compete freely, innovate and become global leaders is certainly another.

And this annual date in Fiesole is without doubt a close third!

But today I would like to talk about some of the cons of this job. To be more precise: continuity, concentration, and consolidation.

Continuity in the effective enforcement of modernised competition law. Concentration so that less state aid is better used. And consolidation to review the achievements of the Single Market and see how things can still be improved, to see how we can really get the most out of our liberalised markets to the benefit of Europe's citizens present and future.

Continuing effective enforcement

Competition policy can make a real difference to competitiveness and growth by maintaining the pattern of effective enforcement of competition law.

The anti-trust and merger rules put in place in 2004 are the right ones. What Europe's business needs right now is continuity and consistency in their application. We have several ongoing projects designed to respond to this need. On the anti-trust side, we are working on developing sensible orientations which would improve enforcement of the ban on abuse of dominant power, as well as helping companies to know when they are on safe ground. We are also looking at the potential of greater private action, as a complement to public enforcement, via claims for damages arising from breaches of the European competition rules.

Today, however, I would like to focus on the merger rules. Continuity in how we assess the effects of business restructuring is particularly important.

I am not against mergers and acquisitions: they are a natural part of keeping Europe's economy healthy and trim.

That is why over the past months the Commission has approved well over 90 per cent of the more than 250 cases examined, most of them within one month.

And that is why I am concerned by indications from across Europe of apparently determined action to prevent acquisitions by companies from elsewhere in the Single Market. This sort of protectionism can only lead the European economy one way: downwards.

But business restructuring must not be achieved at the expense of the consumer. So in another 5 per cent of cases, we have resolved such concerns through remedies.

Prohibition really is the last resort. But when it is essential to ensure that consolidation does not undermine the benefits of liberalisation for consumers, and when no suitable remedies are on offer, the Commission has no choice.

So we had to block the acquisition of Gas de Portugal (GdP) by Energias de Portugal (EDP) and the Italian energy company ENI. The European Court of Justice has recently upheld our assessment that absent the merger, a gas incumbent such as GDP was likely to become a significant power producer competing with the electricity incumbent EDP.

The acquisition would have eliminated this potential for strong competition in the electricity markets and could therefore have resulted in higher prices to the detriment of the overall competitiveness of the economy.

In terms of procedures, the pre-notification referral system for mergers continues to enjoy considerable success.

An average of 10 per cent of cases notified to the Commission are now the result of the referral arrangements.

The 35 referrals between May 2004 and September this year would, under the old regime, have resulted in 239 separate national reviews - that is a lot of red tape saved for merging parties.

We must, however, continue to look with a critical eye at how we can further improve our merger control policy. We have today published a major study on our past policy and practice in the area of merger remedies.

The study covers the period before the reform. Starting from the evidence - and drawing on extensive input from a variety of stakeholders - the study presents a transparent and critical evaluation of our past policy and practice.

It suggests that the reforms introduced in recent years are indeed the right ones, whilst pointing to the need for constant vigilance in the design and implementation of merger remedies.

The study highlights questions ranging from the clearest possible determination of the correct scope of a business to be divested and its interim preservation, to the approval of the right purchaser and the transfer of the entire business to it.

The lessons learnt from this evaluation will contribute to a revision of the Notice on merger remedies, which we will be preparing in the coming months.

But the broad orientation is already very clear. We should continue to identify competition concerns only on the basis of sound economic analysis and solid facts. But once these conditions are satisfied, we should only accept remedies that clearly and unambiguously eliminate the concerns identified.

Concentration - less and better state aid

My second `con' was concentration, but not in the merger sense!

One of the most important tools in the competition policy box is state aid. Reforming the state aid rules is a priority for Lisbon, and my personal top priority.

Effective state aid control maintains a level playing field for free and fair competition in the single market, the key to competitiveness. It is no less essential today than it was thirty years ago.

But it is clear that our existing state aid rules could be better tailored to support economic reform. They could better reflect the European Council's call for less and better aid - in other words, for more concentrated aid.

Less aid because in general subsidies distort the market, which results in lower competitiveness for our businesses, less innovation, and higher prices for consumers.

Better aid, because resources are limited and should be used where they bring greatest added value.

So our rules should ensure that state aid is concentrated more on genuine market failures, on filling the gaps which free economic forces will not naturally deliver, whilst still ensuring that European objectives such as regional solidarity and environmental and social protection are met.

And the current patchwork of rules helps no-one. Better state aid has to mean better regulated State aid, with simplified rules and a reduced administrative burden.

We want to consolidate and extend as much as possible the use of block exemptions, which authorise the granting of aid without it being notified to the Commission.

Fewer notifications means less bureaucratic burden on companies and authorities. State aid measures should be subject to Commission control in proportion to their potential effect on competition and trade.

We also intend to simplify and consolidate the many existing regulations, so that the overall architecture of state aid policy is easier to grasp. Best practice guidelines will help make the framework as user-friendly as possible.

This is, in brief, why the Commission presented an Action Plan for state aid reform.

The consultation which followed has proved very fruitful. From what we have heard so far, there is strong support for the direction we have chosen.

The Commission has already started delivering the Action Plan. A package on Services of General Economic Interest was adopted by the Commission in early July. The measures ensure that companies can receive public support to cover cost incurred - and a reasonable profit - in carrying out the public service tasks defined and entrusted to them by public authorities, whilst avoiding any over-compensation. Generous block exemptions reduce the administrative burden on national, regional and local authorities to the minimum necessary to guarantee that distortion of competition is prevented.

In July, we also circulated a Commission Staff working document on the Review of the Regional Aid Guidelines, and we are listening carefully to Member States' reactions - as well as the views of the European Parliament - before adopting the Guidelines later this year.

And in September the Commission adopted a consultation on State aid for innovation. Innovation is a central issue for European competitiveness, growth and jobs.

State aid alone of course cannot automatically solve Europe's competitiveness or innovation problems. Effective competition is the best and strongest means to create natural incentives for companies to come up with new ideas and new products.

But the market will not always deliver an appropriate environment for innovation. We think that state aid measures can help when they target a well-defined market failure, when they have an incentive effect and are proportionate, and when distortions of competition are limited.

I have not of course forgotten that it is national governments and not the Commission who decide how to allocate national subsidies. We want to provide the best possible European framework, in which the Lisbon objectives can be met. But this reform will only be a success if our Member States share this ambition of properly concentrated aid, and are ready to put it into practice.

Consolidation - getting the most out of the Single Market

My third `con' stands for consolidation. Our Single Market has already delivered a great deal. Consumers - whether businesses or individuals - should be reaping the rewards in terms of a high standard and choice of goods and services at affordable prices. But we know that many consumers are not happy with the options they have.

This should be our driving force across all sectors of the economy: consolidation of the benefits of free European markets to the advantage of all consumers.

The inquiries which we have launched in the financial services and energy sectors under Regulation 1/2003 are designed to deliver this objective.

In energy, we are concerned that the moves so far envisaged to create a more open market in electricity and gas in Europe have not delivered the expected results in terms of business competitiveness and consumer benefit.

The same goes for some sectors of financial services, such as business insurance - in particular for small and medium-sized enterprises - and retail banking.

These inquiries seek to identify and address all barriers to the Single Market.

Barriers may be the result of the behaviour of individual companies. But they may also result from over-regulation or poor regulation - whether at EU or national level.

It may be that better targeted, better quality regulation is needed to promote competition in free markets.

Building on the successful changes brought about under the Financial Services Action Plan, we are looking at two aspects of financial services, chosen after informal consultations with consumer associations, industry representatives, companies and national competition authorities:

- first, retail banking, covering both payment cards and core retail banking products and services; and

- second, business insurance, covering some major insurance lines in the Single Market.

An interim report on payment cards is planned for early 2006. On core retail banking on business insurance, work is underway and questionnaires will be sent out this autumn.

Energy, as a basic input to all economic activity, is a key sector. We must ensure that both prices and investment signals are based on competitive markets, not anti-competitive activity.

Energy consumers are concerned by recent price rises and lack of choice on the market. European energy regulators have identified problems which may already be undermining Europe's competitiveness, and may be made worse by the trend to further consolidation of the sector.

So we are looking urgently at whether markets are malfunctioning, and, if so, why.

I will present the preliminary findings of the inquiry at the Energy Council of 1 December.

The final outcomes of the sector enquiries will depend on the evidence. We will continue to work closely with market participants and Member State authorities throughout these enquiries, and will be fully transparent in our findings and our proposals. All stakeholders will have the opportunity to comment before the Commission comes to definite conclusions.

Conclusions

Ladies and gentlemen,

Our conference today has a typically full and interesting agenda. We simply do not have time to review developments in the use of all of the various competition policy tools over the past months, nor to look at how they can be even better tuned to deliver competition to drive a competitive Europe.

However, there is a fourth `con' I'd like to mention: concrete. I think that the Commission has been fairly clear about where we are heading and what we want to deliver in the competition policy area over the next 49 months. Now the real challenge - producing concrete outcomes - begins.

During this period of reflection about the future shape and direction of the European Union, it is particularly important to keep on demonstrating - through solid results which address the core needs of European business and consumers - that Europe really can deliver.

Ladies and gentlemen, thank you for your shared enthusiasm for the competition cause, for your input to this exciting agenda, and for your attention today.