No Exception for a “European Champion”

It’s official: the EU Commissioner for Competition, Margrethe Vestager, has decided to block a merger between Siemens and Alstom despite massive pressure from company executives and their political allies. Her decision should be applauded.

In 2017, the German conglomerate Siemens and the French rail transport multinational Alstom announced a plan to combine their train-manufacturing operations. Had the deal been approved, the new group would have had 62,000 employees and annual revenues of more than 15 billion euros. The companies argued that the merger was needed as a counterweight to China’s state-owned CRRC, the largest supplier of rail transit equipment in the world. With annual revenues totaling some 30 billion euros, CRRC is twice as large as the stillborn Siemens Alstom group.

Joe Kaeser, the CEO of Siemens, publicly criticized Vestager after she announced her decision. “It must be bitter if you are technically right, but do everything wrong for Europe,” he tweeted. Politicians in France and Germany seem to agree. The German Economy Minister Peter Altmaier and the French Finance Minister Bruno Le Maire called EU competition rules “obsolete” and said that the merger would have created a “European champion” in the railway industry, echoing a statement made by Kaeser in 2017.

Had the antitrust procedure taken place in Germany, the outcome might have been different. The Federal Cartel Office is responsible for assessing the effect of planned mergers on competition. But in the event of a negative ruling, companies can file an appeal with the Ministry of Economic Affairs, which then reviews the case by weighing the harm to competition against the potentially positive effects on industry and society at large. The merger of Edeka and Tengelmann was an instance in which the Economy Minister – a post then held by Sigmar Gabriel – overturned the decision of the Federal Cartel Office along with the negative opinion delivered by the Monopolies Commission. Of the 22 merger appeals filed since 1973, 9 have been approved. In Brussels, there is nothing equivalent to ministerial review. This is no surprise: the EU antitrust decisions are issued from the top, not by a lower-ranking authority.

The small number of successful appeals in Germany – many of which were controversial – shows that only rarely do countervailing factors offset the harmful effects on competition. The Siemens-Alstom merger is no exception. For one, it is doubtful whether the transaction would have created a new “champion”. Ms. Vestager believes that both Siemens and Alstom are already important players in the global market capable of competing independently. For another, the merger of the two most important competitors in Europe would likely have led to higher prices, which would have fallen on European railway companies and, ultimately, railway passengers themselves. And that is precisely what EU antitrust officials were worried about. Clearly, the competitive pressure exerted or likely to be exerted by China’s CRRC in Europe was too low to outweigh these concerns.

Fortunately, Europe remains committed to safeguarding competition, not companies. We must hope that it continues to trust in the innovation and the positive societal effects of healthy competition. The Siemens-Alstom decision was not only technically right; it was right for Europe.

A longer version of this opinion peace appeard in the newspaper "Handelsblatt"  on 6 February 2019.