Are competition rules bad for EU competitiveness?

Publishing date
04 March 2024
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Many politicians love ‘national champions’ – large companies viewed as capable of competing internationally. Many European Union politicians who feel strongly about Europe love European champions. EU competition rules, particularly merger control, are often viewed as standing in the way of building such champions. As the economy ministers of France and Germany put it in a well-known 2019 manifesto, “existing rules need to be revised … to enable European companies to successfully compete on the world stage.

Economists are mostly unconvinced (myself included). The current merger rules allow the European Commission – the EU’s competition authority – to take into account the interests or intermediate and ultimate consumers. If a merger lowers production costs, it could be allowed. More generally, economists think that competition inside the EU tends to be good for the competitiveness of EU companies, and for the EU at large. Competition allows smaller firms to enter markets and grow, challenging incumbents, and forces incumbents to stay efficient to protect their positions. If incumbents can hold off challengers through sheer size, challengers will have no incentives to invest in product and process innovation, and big firms will become lazy.

But arguments of this type can also be challenged. Product-market entry barriers are lower in the EU today than they used to be before the global financial crisis. According to the OECD, they are also lower, in most EU countries, than in the US. Some economists think the EU has overtaken the US with respect to competition. Yet, R&D spending tends to be higher in the US, and US productivity growth is higher. Most worryingly, the French and German economy ministers were not necessarily wrong to argue that “if there is no regulatory global level playing field … this puts European companies at a massive disadvantage. When some countries heavily subsidise their own companies, how can companies operating mainly in Europe compete fairly?” Doesn’t the EU need very large firms, to avoid being crushed by Chinese and US competition?

For a discussion on these issues, join us at the next week’s event with leading experts, Is there a trade-off between competition and competitiveness?

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About the authors

  • 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.    

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