It is no time to doubt competition policy

There is a broad consensus among Commission officials, practitioners and scholars that the enforcement of competition policy enables consumers to benefit from lower prices, a wider choice of products, higher quality and more innovation. In spite of the mentioned improvement of consumer welfare, some voices have demanded for a relaxation of competition policy during the crisis. According to them, Europe’s economic recovery would be delayed by a strict application of competition rules and, as a result, competition policy might be considered an obstacle in this regard. In response to such a request, the European Commission has courageously defended an approach which may be summarized in the following terms: “as we face the uncertainty of this financial crisis, we are fortunate to know that competition policy not only has a proven track record, but is proving to be part of the solution“. Six years after the start of the financial crisis, is there room for criticism?

Let us consider for a moment the following hypothetical cases. First, the European flour industry is going through economic difficulties and the most relevant companies in the sector decide to agree on prices, constituting a cartel. By doing so, flour prices would increase and, in consequence, bread and other basic products as well. The second case refers to the concept of national champions. The government of a country, due to geopolitical reasons, encourages the merger of two of the largest European energy groups, on a market which is already highly concentrated. This decision will probably lead to an increase in energy prices due to the lack of competition. In both instances, if the Commission were to apply a softer enforcement policy, consumers would suffer the decisions adopted by losing more of their already dwindling purchasing power.

Situations such as those described above are some examples of what might be the results of a relaxed application of competition policy in times of crisis. They show that a proper enforcement of competition rules is even more necessary in the framework of an economic downturn than at any other time. Indeed, the European Commissioner Almunia, who gave a speech at the College of Europe within the framework of the Iberian Week, highlighted the role of competition policy as a driver for growth. According to him, the European economy will not be competitive without increasing productivity, which requires business compliance with competition rules.

Unfortunately, all that glitters is not gold. The approach adopted by the Commission during some phases of the financial crisis in the field of state aid can be subject to criticism. It is fair to say that the Commission reacted quickly to safeguard the financial system. Nonetheless, the principles followed according to the Rescue and Restructuring Guidelines to deal with aids granted to the financial sector might have had a negative effect. Remedies such as balance sheet reductions and behavioural constraints could have undermined competition and lending capacity of financial institutions in a period of credit scarcity.

Despite some room for criticism, economic growth stimulation and market integration have fortunately prevailed over the alleged short-lived benefits of relaxed competition policy during the crisis. By remaining firm on their principles since summer 2007, the European Commission has appropriately protected the long term advantages of competition policy.

Juan Carlos González Fernández is a student at the Department of European Economic Studies at the College of Europe (Bruges). He is a graduate in Law and in Business Administration from the Complutense University of Madrid and holds an LL.M. from the London School of Economics.

Pablo González Pérez is a student at the Department of European Legal Studies at the College of Europe (Bruges). He is a graduate in Law and in Business Administration from the Complutense University of Madrid and holds a postgraduate diploma from the University Paris 1 Panthéon-Sorbonne.