Joaquín Almunia, European commissioner for Competition and vice president of the European Commission, recently spoke to the advisory board of Germany's Mining, Chemical and Energy Industrial Union, placing a special emphasis on the importance of competition in Europe. An excerpt of the speech was published in CHEManager Europe 5-6/2010. Here you can read the entire speech.

Today the reality is that many of our industries are facing significant challenges. These include the need to reduce CO₂ emissions, to keep up with advances in technology, and increasingly dynamic competition from the world's emerging economies.
The question then is how can we respond to these challenges? How can we improve the competitiveness of European industry, so as to be able to meet these challenges head on?
Some argue that protectionism - closing national and European borders to competition - is the only option. They argue that we cannot compete on wages, and that others are as good as we are in terms of technology and skills. On top of this, measures to fight climate change only add to the burden on our shoulders. They accuse the EU of being naïve, out of touch with reality.
But we are not naïve.

We are convinced that the solution to the challenges faced by European industry does not lie with a defensive, inward-looking, Europe. We believe that European industry has a future. We are confident that European industry can be strong, provided that we implement a Europe-wide strategy to meet the challenges it faces. This is why we recently launched the Europe 2020 strategy, which aims to achieve a new period of growth and dynamism in Europe and to implement a sustainable model for growth and jobs in Europe.

Europe 2020

At the end of March, the European Council endorsed the Commission's Europe 2020 Strategy. The heads of state and government concluded that innovation and competitiveness are fundamental to this strategy, alongside protection of the environment and social inclusion.
The Europe 2020 strategy includes seven main policies, what we call "flagship initiatives."
Five out of seven of these flagship initiatives are directly linked to EU industrial sectors: innovation; a digital agenda for Europe; a resource-efficient economy; an industrial policy to tackle globalization; and the need for new skills and jobs.

I know that implementing these policies and meeting our targets will not be easy. We are still fighting the biggest crisis in 70 years. There is high unemployment, lower potential growth, and higher levels of public and private debt. But we have no alternative: this is what we must do. Only a European strategy can succeed, given the interdependence of our economies, in particular within the Economic and Monetary Union.
But you may ask: what is the role of competition policy? How can competition policy contribute to achieving the objectives of the Europe 2020 strategy, including innovation, competitiveness, employment and protection of the environment? How can competition policy contribute to helping European industry emerge from the current financial and economic crisis better equipped for sustainable growth?

Financial And Economic Crisis

EU competition policy - and in particular state aid policy - has played an important role in the context of the financial crisis.
When it became clear that in order to maintain financial stability, Member States were going to have to intervene in the market on a large scale in order to provide support for financial institutions, the Commission reacted quickly.
The Commission facilitated government measures to support the financial markets, by immediately adopting guidelines setting out the EU wide criteria on which these measures should be based, and by rapidly approving measures that complied with these criteria. In this way, the Commission helped preserve the internal market, avoided damaging subsidy races between Member States, and kept distortions of competition in the financial sector to a minimum.
The Commission also adopted a Temporary Framework under the State aid rules to enable member states to facilitate access to finance by the "real" economy, which is being squeezed as a result of the crisis.
The aid instruments adopted in the context of the crisis were designed to meet the needs of the crisis: the need to preserve the stability of financial institutions and to restore liquidity for the real economy.

Going forward, our State aid policy is contributing to a return to the normal functioning of the banking sector - for instance by insisting on restructuring measures for certain financial institutions that have received large amounts of aid and have unsustainable business models.
We need to avoid "zombie banks" that stay alive but are too weak to lend to the real economy, an experience Europe cannot afford.
We are currently discussing restructuring measures with the German authorities and a number of German banks, including Bayern LB, HSH Nordbank, Hypo Real Estate, Sparkasse KolnBonn, and West LB. The proposed measures under discussion include downsizing and divestment measures, or the transfer of certain toxic assets into a "bad bank." Our objective is both to mitigate the distortions of competition that result from the aid banks have received, and to ensure that these banks are in a position to return to viability, without state support.
Of course, aid must be phased out gradually, taking account of market conditions and the requirements of financial stability. But there should be no doubt about our goal: we want to achieve an exit from state support and a return to normal market functioning for all market players as soon as possible.

Once the exceptional State aid framework adopted at the beginning of the crisis is phased out, normal State aid instruments should continue to play a key role in helping the European economy emerge from the crisis.

Achieving Competitiveness

Competition policy can help drive competitiveness, growth and jobs over the long term.

1. Competition encourages companies to innovate. They cannot rest on past successes. Instead, they are forced to come up with new and better products so as to retain old customers and gain new ones. Companies are encouraged adapt their business strategies to customer demands and to make investments for the longer term.
2. Competition encourages companies to allocate their resources in the most efficient way.
3. Competition contributes to achieving more choice, better quality and lower prices for consumers - and it is worth remembering that businesses are consumers too, and that they benefit from competition with respect to their inputs, all the goods and services they have to purchase.

Ultimately, competition helps boost productivity, commercially successful innovation, sustainable growth and high-quality job creation - which are the instruments to achieve our goals.
In order to promote competition and competitiveness in Europe, we have three sets of competition policy instruments at our disposal: the EU Treaty rules on anticompetitive agreements and abuses of dominant position, and those governing mergers between companies. And, the EU rules on State aid, which aim to ensure a level playing field between businesses in Europe.

What is absolutely key is that we must not weaken our enforcement of the competition rules because of the consequences of the crisis.
For instance, many cartels raise the prices of input and intermediate goods that go into the manufacturing of final consumer goods. By combating this type of conduct, anti-cartel enforcement in the EU also supports the competitiveness of EU industry.
Firms sometimes enter into cartels due to excess capacity in the sector concerned. Some voices have been raised in favor of dealing with such structural problems by temporary suspension of competition rules. This approach was tried in the US in the 1930s - but the result was lower output, higher prices and reduced purchasing power. Some say the effect was to prolong the depression by several years
What we can do though, is to ensure that our legal framework for competition is as up to date as possible. For instance, we are on the point of replacing regulation governing competition aspects of car distribution in the EU. Our objective is to give carmakers more flexibility in the ways in which they distribute new cars, while making it easier for Commission to enforce competition rules on the so-called "aftermarkets." These are the markets for car maintenance and spare parts, which are less competitive and need more intervention.

We can also focus our enforcement efforts where they will have the greatest impact on competitiveness. I am very aware that lack of competition in network industries harms EU industry as a whole by driving up input costs, making it globally less competitive.
For instance, between 2005 and 2007 the Commission carried out an in-depth inquiry into competition in gas and electricity markets in the EU. As a result, we opened a number of competition cases in the energy sector and have achieved significant results on energy markets notably in Germany, France and Italy.

In November 2008, the German electricity provider E.ON agreed to divest generation capacity and network assets, to meet concerns that it might have withheld capacity in order to raise prices.
In March 2009, RWE offered to sell its existing high pressure gas transmission network, to meet concerns that it was refusing to supply capacity to competitors, and setting tariffs artificially high so as to squeeze their margins.
The remedies offered by both of these companies, and others, will result in more competition and better functioning markets for gas and electricity in Germany. In turn this will encourage investment.
I mentioned that the Digital Agenda is an important aspect of the Commission's plans for achieving growth and jobs. In recent years, we have maintained a focus on maintaining competition in information and communications technology markets in Europe - bringing cases against Microsoft and Intel notably. I believe that these markets are key to supporting innovation and growth for European industry as a whole
Pharmaceuticals is an area of potential significant growth in Europe. We recently carried out an inquiry into pharmaceuticals markets in the EU, focusing in particular on the lack of competition from generic pharmaceutical companies. Some individual competition cases have already been opened.

The point of these inquiries and investigations is to ensure that there is effective competition on the market, which helps the market function as well as possible, to the benefit of business and consumers. Competition may however not always be enough to deliver innovation or other socially beneficial goods and services. Where competition and markets fail to deliver the outcome we need, there may have to be well-targeted public policy intervention, such as regulation or subsidies.
The need to take action to protect the environment is arguably the most striking example. To take a recent example, the Commission has just authorized €30 million worth of support by the German government to ArcelorMittal for a project called "Top Gas Recycling." It involves a technology that will enable considerable reductions in CO₂ emissions in the steel sector. We have also authorized aid of over €18 million to a French project called Gaya, for the development of environmentally friendly automobile fuels.

As a rule, though, I believe that horizontal aid measures such as aid to research and development and innovation, create less distortions of competition than individual aid measures to particular companies.
EU State aid rules include a clear framework which clarifies how Member states can lawfully support research and development aid in the EU.

Competing Globally

Growth and jobs will however not only require world-class research, innovation and infrastructure. EU products and services will need to find market outlets. Emerging growing economies - such as those in Asia - constitute such future markets vital for European growth. The EU has maintained its share of global trade over the past decade.
To continue to hold its own on world markets the EU will need among other things to build on its Market Access Strategy, for which my colleague responsible for international trade, Karel de Gucht, is in charge of this. But our competition policy can also contribute to the Europe 2020 Strategy in this area.

The application of an EU-wide competition policy helps create a level-playing field for business across Europe. It creates opportunities for companies, which have access to a wider market for their goods and services. It also creates challenges that improve their performance, as they find themselves competing with companies from across the EU.
At the same time, competition enhances companies' ability to compete globally. Businesses will be in a better position to compete outside our borders if they are capable of investing, innovating and creating jobs within the internal market.
Those who think that protecting domestic firms from competitive pressures enhances their productivity gains are wrong.

Conclusion

In order to meet the challenges facing European industry today, and to achieve sustainable growth and long-term high quality employment prospects, I think we need to be realistic.
The way forward is not to close our borders or to retrench behind private or state barriers to competition. I believe that what we need to do is to pull together and to implement a Europe-wide strategy that will help us emerge from the crisis. The path to recovery lies with innovative and competitive industries, which are in a position to compete for business across the EU Single Market and globally.
I believe that European competition policy can help industry down that path.