Trump’s protectionist rhetoric, the rise of U.S.-led techno-feudalism and the Draghi report are all the ingredients that politicians needed to revive the idea that Europe needs stronger, bigger companies to compete in a new world order.
For the last few months, we have read news, papers and press releases from companies and policymakers arguing that European companies are lacking the scale and size needed to compete with the Googles, Nvidias and Amazons of the world. And it is true, Europe has missed more than one train – or rocket, I should say. But while size matters, this is not the only metric to measure a company’s potential to disrupt global markets.
But I will not focus on whether or not Europe needs “European Champions”, though it probably needs a few. I will talk about how some politicians, and even CEOs, may be picking the wrong argument by suggesting we need new merger rules or more lenient reviews.
Draghi mentioned a “new approach to competition policy”, suggesting that perhaps the EU should allow the creation of bigger EU companies to carry out the investments needed in telecommunications, computing infrastructure or banking. Von Der Leyen’s Letter to Teresa Ribera (EU Competition Commissioner) also suggests that the EU should review merger rules to “give adequate weight to the European economy’s more acute needs in respect of resilience, efficiency, and innovation”.
This triggered a wave of opinions claiming that the European Commission should be more lenient when it reviews mergers and acquisitions. This is not the first time and it won’t be the last. But numbers are clear, the European Commission approves almost every merger it reviews. In the last 10 years (2014-2024), it blocked only 9 transactions out of 4166 notifications. Another 19 were withdrawn during a second phase investigation, and as we know, some of these may have been blocked if not withdrawn. But overall, it doesn’t seem like the Commission is preventing the creation of European Champions.
Proponents of a more lenient approach always bring the cases of Siemens/Alstom, LSEG/Deutsche Börse, and the Telecommunication sector. It is hard to believe that Siemens and Alstom needed a bigger size to compete globally, in fact, they are still leaders on their own, years after the failed merger. LSEG and Deutsche Börse are also thriving after the attempted merger, but this is perhaps a good case study since Europe lacks a stronger capital market. As for the Telecommunication market, a few years ago a 4 to 3 transaction was hard to achieve, and now we have quite a few examples: Hutchison 3G acquired Orange Austria, Telefónica Deutschland merged with E-Plus, Hutchison 3G merged with Telefónica Ireland (O2) and Vodafone UK and Three UK agreed to merge. The next step could be 3 to 2 consolidations.
The reality is that merger rules are flexible enough to be more or less accommodating. For instance, a broader or narrower market definition, the role given to a competitor or a potential competitor or even how to assess the market evolution may determine the fate of the merger analysis. Therefore, rules are not the problem, political interference is. The real problem is that policymakers are pushing for results regardless of the merits of a merger. Remember that two turkeys don’t make an eagle! And they may have different opinions about similar situations.
For instance, cross-border banking mergers is one of the proposed solutions for the lack of a strong capital market in Europe and the problems to finance big projects. Are merger rules the problem? No, they are not. While Germany seems very happy to ask for European Champions in industrial sectors, it is not so happy to do so in the banking sector, fearing some Italian, French or Spanish banks could take a German counterpart (and their money, of course!). Thus, the problem may not be the rules, but their intended use.
The real problem is that there are few big European companies in digital markets or computing infrastructure, and even fewer attempts to merge—yet merger rules are not to blame
Rather than focusing on the merger rules, politicians should focus on how difficult it is for European Companies to grow, organically, not through acquisitions. Limited access to finance, heavy taxation, strict labour laws, and an endless myriad of regulations is what mostly prevent small firms from growing, not merger rules. If we want to have European Champions on cloud computing, semiconductors, biotech and other high tech industries, we will need first medium and small companies to thrive (and incentives to do so). These companies don’t need better merger rules, they need less bureaucracy and taxes.
