Europe, Don't Give up!

IT IS IMPORTANT FOR THE EU TO AVOID RELAXING ITS POLICIES ON COMPETITION, ACCORDING TO CHIARA FUMAGALLI

The economic disruption caused by the COVID-19 pandemic has led to massive state intervention and is sparking a new round of debate about EU competition policy. In March 2020, the European Union asked firms to suspend their merger filings. Some commentators have suggested that the pandemic is an opportunity for the EU to improve long term growth by allowing so-called “zombie companies” to find stronger partners and that merger control should therefore be made more permissive.
 
In “Which Role for State Aid and Merger Control During and After the Covid Crisis?” published in the Journal of European Competition and Law Practice, Bocconi University’s Associate Professor at the Department of Economics Chiara Fumagalli, along with Massimo Motta and Martin Peitz, argue that competition rules should not be relaxed.
 
“To loosen competition policy in terms of merger control will lead to inefficiencies that will have persistent effects,” explained Fumagalli. “There are other instruments that are more effective and create fewer distortions.”
 
The crisis has affected different sectors in difference ways, the paper points out, and therefore policy responses should be tailored accordingly. For example, “Among these expected winners of the COVID crisis there are the big digital platforms, which reinforces the need for competition policy to deal with their increasingly dominant positions,” the authors say. Firms selling groceries and health care products are other examples.
 
For those sectors where the crisis will have a temporary effect, well-designed state aid “should be welcome,” but relaxing merger rules would be counterproductive. The authors cite research on Japanese banks in the 1990s and on Italian banks during the sovereign debt crisis to assert that the market when left alone does not always pick the most efficient firms.
 
Finally, in those sectors where the crisis is likely to have a long-term impact, like airlines, cinemas, and trade fairs, for example, “both state aid and the relaxation of competition rules carry big risks and often lead to inefficient outcomes and thus a misallocation of resources,” the article says.
 
It should be noted that in September 2020, EU Competition Commissioner Margrethe Vestager ruled out a more permissive approach and warned “this is not the time to give up on competition enforcement.”

by Jennifer Clark