February/March 2002 - CER BULLETIN, ISSUE 22

BREAKING THE EU'S COMPETITION MONOPOLY
by Edward Bannerman

As the EU's competition chief, Mario Monti can make or break the world's biggest companies. The exercise of his wide-ranging powers is always controversial. Last summer, he blocked the planned 50 billion euro GE-Honeywell merger. Soon, he must take a decision about Microsoft's activities - call for the break-up of the American software giant. EU leaders, keen to protect their own 'national champions', regularly lobby him.

When Monti first joined the European Commission, as commissioner for the single market, he favoured the creation of an independent agency to enforce EU competition law. But even before he became competition commissioner, he changed his mind. He now believes the Brussels-based executive should have a monopoly of enforcement in competition policy. There are, however, a number of compelling reasons why a new independent agency, answerable to the Commission, should be a boon to his work.

First, a new agency that focused exclusively on the competition aspects of merger control and anti-trust would help take the politics out of enforcement. Under the current system, the college of 20 European commissioners decide collectively on all key competition decisions, and the threat of dubious trade-offs is ever present. The full Commission may have legitimate grounds for over-ruling the competition commissioner's proposed decision. But a separate agency would make the decision-making process more transparent.

In Germany for example, the federal government is currently reviewing the recent decision by its own competition authority to block the merger between E-ON and Ruhrgas. The government's intervention has proved extremely controversial. Sceptical consumers, who fear price hikes from dominant groups, and other EU governments, which want Germany to open its energy markets, would understandably protest if the original decision were overturned.

But the row highlights the strengths of the German system of competition enforcement. The fiercely independent Bundeskartellamt assesses deals like E-ON's planned investment purely on competition grounds. The fact that the German government has not overturned a Bundeskartellamt decision since 1989 shows the effectiveness of this constraint on any political interference.

A second argument in favour of an independent EU competition agency is that many policy-makers in member-states and in the private sector are uncomfortable with the extent of the Commission's powers of enforcement. These powers are more extensive in competition policy than in any other area of the Commission's work. And the Commission would like to extend them further still. There are valid reasons why competition enforcers need the right to block large mergers or mount 'dawn raids' on companies, for example, but they must be accountable for their actions.

Separation of powers is the answer to this problem. A new competition agency should undertake the day-to-day enforcement work, but must be answerable to the Commission, which is guardian of the EU's treaties. With the specialist expertise that it would retain in its competition directorate-general, the Commission could also offer a genuinly 'fast-track' appeal process for companies that feel they have been unfairly treated. The EU's lumbering judicial machinery has, so far, been unable to provide this. As a 'check and balance' on enforcement, the Commission would become part of the solution rather than part of the problem.

The transfer of powers over competition policy from politicians to an independent agency is also a clear trend both among the member-states and at EU level in other areas. Governments increasingly recognise the importance of avoiding political interference in technical policy-making. The European Central Bank, for example, runs monetary policy, while the European Medicines Evaluation Agency vets pharmaceuticals for the EU's single market.

Fourth, a new EU competition body, freed from the Commission's constraints on staffing policy, could more easily recruit badly-needed specialists in anti-trust law and economics from the private sector. A properly managed 'revolving-door' between regulators and corporate advisors, similar to the situation in the US, would improve both the transparency and quality of competition policy decision-making. Each side would learn from the experience of working for the other.

Finally, a European Competition Agency that was clearly independent of political influence would be more credible internationally. It would be harder to accuse such a body of favouring European businesses, as many American lawmakers have done in the past. These accusations do not stand up to serious scrutiny. But regulators in other countries would feel more comfortable dealing with an agency that was independent of the wider EU policy machinery.

Over many years, the Commission has built up an impressive record in fostering a culture of competitive markets. A smaller competition directorate within the Commission should continue to set policy, and provide guidance to other parts of the EU's executive. The vital work of controlling state aids should also remain within the Commission, as it alone has the political clout to challenge member-states over unfair subsidies. This is a key part of the Lisbon agenda of economic reform, and in this context the Commission should also use market-opening powers more aggressively - in the energy sector, for example.

So Commissioner Monti has nothing to fear from a new, autonomous European Competition Agency. Such a body would address many of the weaknesses in the current system while not undermining any of its core strengths. A specialist agency that worked to keep European markets competitive would help to support the commissioner's work and promote higher economic growth across the EU.

Edward Bannerman is head of the business unit at the CER. This article is based on a new CER report: 'The future of EU competition policy'.