First Glance

Updated assessment: Memos to the commissioners responsible for the internal market, industrial policy and competition

Publishing date: 30 January 2025
Authors: Fiona M. Scott Morton Simone Tagliapietra Jeromin Zettelmeyer

Published alongside Heather Grabbe and Jeromin Zettelmeyer's paper, 'Not yet Trump-proof: an evaluation of the European Commission’s emerging policy platform'.

The following text provides a follow-up to the memos to the commissioners responsible for the internal market, industry and competition, originally published on 4th September 2024. All Memos to the European Union leadership were collected in the book, 'Unite, defend, grow'.

The European Union’s central challenge remains raising productivity growth. To achieve this, the EU needs to break down remaining single market barriers and develop procompetitive industrial policy tools (Scott Morton, 2024b). We have argued that these tools should operate at EU level, that state aid rules remain essential to protecting the single market and that they should not be loosened (Poitiers et al, 2024, Scott Morton, 2024a). Trade policy should be supportive of industrial policy but stay within World Trade Organisation rules, as rules-based trade remains essential to EU growth and competitiveness. In the same vein, vigorous competition enforcement remains essential to business dynamism, entry and growth, but must be adapted to meet new challenges, particularly to protect competition in future innovation.

What changes as a result of Trump? Likely new tariffs will add to the cost shocks faced by EU producers, and reduction or withdrawal of support for Ukraine and international climate action would add to the EU’s fiscal burden. This makes a pro-growth agenda even more urgent but does not fundamentally change the elements of that agenda. The fact that US protectionism will now likely take the form of higher tariffs rather than subsidies reduces the pressure for a subsidy race with the US. The new US administration’s deregulatory agenda will also increase pressure on the EU to deregulate.

The European Commission’s approach. The mission letters suggest that the Commission will push Draghi’s (2024) innovation, regulatory and single market agenda. The Commission has also embraced Draghi’s push for industrial policy, calling for a “European Competitiveness Fund” and industrial policy focused on clean tech and the decarbonisation of industry (von der Leyen, 2024). But it appears to be less concerned than Draghi about protecting competition, calling for (1) “a new State aid framework to … deploy industrial decarbonisation and to ensure sufficient manufacturing capacity of clean tech”, and (2) “a review of the Horizontal Merger Control Guidelines to give adequate weight to … the time horizons and investment intensity of competition in certain strategic sectors”¹ Mission letter from Ursula von der Leyen to Teresa Ribera Rodríguez, Executive Vice-President-designate for a Clean, Just and Competitive Transition, 17 September 2024, https://commission.europa.eu/document/download/5b1aaee5-681f-470b-9fd5-…. . While the Commission has stopped short of endorsing local content requirements as a condition for receiving subsidies, the mission letter to Executive Vice-President Stéphane Séjourné called for a “preference for European products in public procurement for certain strategic sectors and technologies”² Mission letter from Ursula von der Leyen to Stéphane Séjourné, Executive Vice-President-designate for Prosperity and Industrial Strategy, 17 September 2024, https://commission.europa.eu/document/download/6ef52679-19b9-4a8d-b7b2-…. .

Assessment and updated recommendations. The Commission’s endorsement of Draghi’s innovation and single market agenda is welcome, but relaxing state aid rules and merger control in “certain strategic sectors” will weaken competition and harm the single market. To minimise these risks, the Commission should (1) stick to Draghi’s competition policy agenda, resisting the temptation to relax merger rules in order to promote European champions; (2) bolster any new state aid framework with a governance structure that coordinates industrial policy across EU countries and with EU-level policy, and ensures that it benefits all of the EU; (3) ensure that the proposed European Competitiveness Fund is deployed in a competitive fashion.

The Commission should also develop a framework for supporting the decarbonisation of energy-intensive industry that does not stand in the way of needed restructuring, including the shedding or relocating of production that is too expensive in the EU in the longer term. Finally, the Commission should eliminate or recast regulations that increase net costs while holding firm on regulations that protect society from harm – not mainly as a reaction to President Trump, but as part of a broader strategy to raise productivity growth.

References

Draghi, M. (2024) The future of European competitiveness, European Commission, available at https://commission.europa.eu/document/download/97e481fd-2dc3-412d-be4c-f152a8232961_en

Poitiers, N., S. Tagliapietra, R. Veugelers and J. Zettelmeyer (2024) ‘Memo to the commissioner responsible for the internal market’, in M. Demertzis, A. Sapir and J. Zettelmeyer (eds) Unite, defend, grow: Memos to the European Union leadership 2024-2029, Bruegel, available at https://www.bruegel.org/book/unite-defend-grow-memos-european-union-leadership-2024-2029

Scott Morton, F. (2024a) ‘Memo to the commissioner responsible for competition’, in M. Demertzis, A. Sapir and J. Zettelmeyer (eds) Unite, defend, grow: Memos to the European Union leadership 2024-2029, Bruegel, available at https://www.bruegel.org/book/unite-defend-grow-memos-european-union-leadership-2024-2029

Scott Morton, F. (2024b) ‘The three pillars of effective European Union competition policy, Policy Brief 19/24, Bruegel, available at https://www.bruegel.org/policy-brief/three-pillars-effective-european-union-competition-policy

Von der Leyen, U. (2024) Political Guidelines for the Next European Commission 2024-2029, available at https://commission.europa.eu/about-european-commission/political-guidelines-2024-2029_en

About the authors

Fiona M. Scott Morton

Fiona M. Scott Morton is a Senior fellow at Bruegel and the Theodore Nierenberg Professor of Economics at the Yale University School of Management. Her field of economics is industrial organization and within this field she focuses on empirical studies of competition. The topics of her current research are the economics of competition enforcement and competition in healthcare markets. From 2011-12 Professor Scott Morton served as the Deputy Assistant Attorney General for Economic Analysis (Chief Economist) at the Antitrust Division of the U.S. Department of Justice, where she helped enforce the nation’s antitrust laws. She frequently presents to, and advises, government agencies tasked with enforcing competition law. At Yale SOM she teaches courses in the area of competitive strategy and competition economics. She served as Associate Dean from 2007-10 and has won the School’s teaching award three times. She founded and directs the Thurman Arnold Project at Yale, a vehicle to provide more competition policy programming to Yale students and the wider competition community. Professor Scott Morton holds a BA from Yale and a PhD from MIT, both in Economics.
Simone Tagliapietra

Simone Tagliapietra is a Senior fellow at Bruegel.

He is also a Part-time professor at the Florence School of Transnational Governance (STG) of the European University Institute and an Adjunct professor at the School of Advanced International Studies (SAIS) Europe of The Johns Hopkins University.

His research focuses on the EU climate and energy policy, and on its industrial and social dimensions. With a record of numerous policy and scientific publications, also in leading journals such as Nature and Science, he is the author of Global Energy Fundamentals (Cambridge University Press, 2020) and co-author of The Macroeconomics of Decarbonisation (Cambridge University Press, 2024).

On the basis of his policy and scientific production, Dr. Tagliapietra regularly supports EU and national institutions in the development of their public policies in the field of climate and energy, also through regular interaction with public decision-makers in EU and national institutions, as well as through regular parliamentary testimonies in the European Parliament and various national parliamentary assemblies inside and outside Europe, such as the French Senate, the UK House of Lords and the US Senate. His columns and policy work are widely published and cited in leading international media.

Dr. Tagliapietra also is a Member of the Board of Directors of the Clean Air Task Force (CATF) and Senior associate of the Payne Institute at the Colorado School of Mines in Golden. He holds a PhD in International Political Economy from the Catholic University of Milan, where he previously graduated under the supervision of Professor Alberto Quadrio Curzio and where he also served as an Assistant professor (tenure-track) until 2024. Born in the Dolomites in 1988, he speaks Italian, English and French.
Jeromin Zettelmeyer

Jeromin Zettelmeyer has been Director of Bruegel since September 2022. Born in Madrid in 1964, Jeromin was previously a Deputy Director of the Strategy and Policy Review Department of the International Monetary Fund (IMF). Prior to that, he was Dennis Weatherstone Senior Fellow (2019) and Senior Fellow (2016-19) at the Peterson Institute for International Economics, Director-General for Economic Policy at the German Federal Ministry for Economic Affairs and Energy (2014-16); Director of Research and Deputy Chief Economist at the European Bank for Reconstruction and Development (2008-2014), and an IMF staff member, where he worked in the Research, Western Hemisphere, and European II Departments (1994-2008).

Jeromin holds a Ph.D. in economics from MIT (1995) and an economics degree from the University of Bonn (1990). He is a Research Fellow in the International Macroeconomics Programme of the Centre for Economic Policy Research (CEPR), and a member of the CEPR’s Research and Policy Network on European economic architecture, which he helped found. He is also a member of CESIfo. He has published widely on topics including financial crises, sovereign debt, economic growth, transition to market, and Europe’s monetary union. His recent research interests include EMU economic architecture, sovereign debt, debt and climate, and the return of economic nationalism in advanced and emerging market countries.