Applying state aid sanctions to outside companies as well is better than allowing pan-European mergers
The industrial policy of the European Union is beginning to be surprisingly sensible. Margrethe Vestager, the bloc’s head of antitrust policy, unveiled her plan on Wednesday to apply state aid sanctions to foreign giants. It is a better way to protect domestic industries than to allow pan-European mergers that break up competition. But maintaining a level playing field will not be enough to help high-tech sectors like semiconductors.
Vestager has long distrusted the creation of European business champions. It blocked the merger of Siemens and Alstom’s rail operations in 2019, ignoring pleas from Paris and Berlin that the deal was necessary to counter the growing dominance of the state-backed Chinese company CRRC. Vestager has replied that the agreement could also have caused a rise in prices for European rail operators and, therefore, for passengers.
Their much more sensible alternative is to apply the bloc’s internal restrictions on public subsidies to foreign companies as well. Under the proposals, Vestager could prevent a state-backed company from buying any business with more than € 500 million in revenue in the bloc, and could intervene in European government contracts of at least € 250 million involving subsidized foreign companies. For the state. The plan also gives it broad powers to investigate and sanction “all other market situations” in which there may be public aid, such as when a Chinese state company starts new operations in Europe.
EU member states and the European Parliament will now quarrel over the details. But at least they are going in the right direction. Vestager’s plan will make it difficult for government-backed companies like telecoms group Huawei Technologies to drive out their European rivals on their own turf. At the same time, however, the Commission can maintain its scrutiny of cumbersome defensive mergers between European companies. That policy seemed vulnerable after Germany and France published a plan in 2019 to facilitate European mergers and acquisitions by weakening EU antitrust rules.
The next question is how Europe can strengthen sectors in which it is weak, such as semiconductors. Defensive barriers alone will not be enough, as EU chipmakers are already far behind American and Asian giants. The same is true in other areas such as cloud computing. Research and development incentives would help, within the limits of European state aid rules, as would more investment in education and training. This will take time, but the Vestager plan offers at least a stronger foundation on which to build sensible industrial policy.