Protectionism in the Age of Austerity – A Further Unlevelling of the Playing Field?

In our 2006 article, we highlighted an emerging wave of interventionism by EU Member States that manifested itself in a variety of protectionist measures designed to prevent foreign takeovers and promote national champions. The European Commission had initiated infringement proceedings against several Member States that had invoked industry-specific national regulations in an attempt to prevent takeovers of national companies by foreign competitors, when those transactions had already been cleared unconditionally by the Commission under its exclusive jurisdiction under the EU Merger Regulation (“EUMR”).

In a number of further cases, the Commission had been powerless to prevent the (attempted) creation of national champions, as it was unable to assert its jurisdiction over mergers between largely domestic players that were subject to the EUMR’s “two-thirds rule.” Member States were criticized for applying public interest considerations that were unrelated to competition policy to clear a merger creating a national champion.

Against this background, we examined the compatibility of a range of protectionist State measures with the Internal Market and queried whether the overriding interests of the Internal Market would justify the abolition of the two-thirds rule.

Nearly six years later, in the wake of a global financial crisis that gives rise to protectionist temptations once again, the rule is still in place despite mounting criticism. The economic crisis and the often painful adjustments arising from the ensuing debt consolidation process provide a seemingly compelling justification for some governments to resort to interventionist industrial policies based on the belief that governments can “pick winners” by creating or protecting national champions.

However, the Commission’s recent decisional practice demonstrates its continued resolve to block the creation of national—or even European—champions where it considers that such mergers would significantly impede effective competition.