Daily Management Review

Why did Europe block Siemens – Alstom merger?


Brussels did not give the green light to the Siemens and Alstom trains. On February 6, European Commissioner (Minister) for Competition Margrethe Vestager vetoed the plan of the German concern and the French company to merge their railway transport divisions. The antimonopoly agency concluded that this merger contradicts the interests of European consumers, as it will restrict competition in the EU internal market.

Boevaya mashina
Boevaya mashina

Such decisions invariably caused discontent among stakeholders. However, this time a particularly harsh criticism is addressed to Brussels. Moreover, the discussion has already gone on the fundamental principles: Berlin and Paris have announced that they will now stand for revising the EU antitrust laws.

French Economy and Finance Minister Bruno Le Maire called these laws "obsolete." He also stated in a television interview that the decision taken in Brussels, which he said was a “mistake,” leads to weakening of Europe and “serves China’s economic and industrial interests.” The charges are more than serious. 

Why did he mention China? As a matter of fact, China plays the key role in this seemingly purely European antitrust story. Because of the Eastern country, the particular question of Siemens and Alstom trains is developing into a conceptual discussion about by which principles and priorities the European Union should be guided.

The rapidly growing power of the world's largest railway transport manufacturer, the Chinese state-owned company CRRC, became the main official reason for the fact that in September 2017, Siemens and Alstom announced their intention to merge their railway divisions.

Leaders of the two companies indicated then that even after such a merger, the annual revenue of the combined European company would be approximately two times less than that of the Chinese CRRC, which has about € 30 billion. They stressed that in order to resist such a giant in the fight for orders in the markets of other countries, a certain critical mass is needed, and the planned merger will create it.

The idea of a merger was actively supported at the political level in Berlin and Paris. France and Germany believed that the new company could become a kind of “Airbus on rails”, in other words, it would repeat the extremely successful experience of creating the Airbus aircraft manufacturing company, which arose due to the merger of mainly French and German aircraft factories.

German Minister of Economy Peter Altmaier told about importance of such "European champions" in the global competition between the US, China and the EU on February 5, presenting the "National Industrial Strategy 2030".

Therefore, Berlin and Paris has persistently lobbied for the planned merger. The main argument of all supporters of the deal came down to the thesis: today it is necessary to think in global categories, and therefore, when considering antitrust cases, one should take into account not only a single European market, but also the global market as a whole. And there is no monopoly in the united manufacturer of trains Siemens-Alstom, it’s just survive before thrive.

However, Danish Margrethe Vestager has her own logic and her own truth. She was appointed to the post of European competition commissioner not to help European manufacturers conquer markets in, say, Asia or Africa. Her task is to ensure a sufficient level of competition in the domestic EU market and to prevent emergence of monopolists that would inflate prices for European consumers.

After nearly a year and a half of studying likely consequences of the planned merger, Margrethe Vestager and her team concluded that it would lead to monopolies in the EU market in two segments: high-speed trains (ICE by Siemens releases, known in Russia as Sapsans, and Alstom - TGV ) and signaling equipment on the track.

"With regard to high-speed trains, the European Commission considers it highly unlikely that enterprises participating in the transaction will face competition from China in the foreseeable future," Margrethe Vestager said on February 6. In other words, she does not expect the CRRC to come soon with its trains to the EU market. And Chinese do not supply signal equipment to Europe either.
The decision taken in Brussels was welcomed by the Canadian company Bombardier, which has been operating on the European market for a long time. Nicola Beer, general secretary of the German opposition Free Democratic Party (FDP), also praised the news from Brussels.

“No one will benefit if Europe starts to raise monopolistic giants, because ultimately this will lead to higher prices for consumers and make it difficult for innovative startups to enter the market,” said the liberal FDP politician. If, according to her, foreign companies begin to promote their products with the help of dumping prices and subsidies, then measures envisaged by WTO rules should be applied against them.

In turn, direct supervisor of Margrethe Vestager, head of the European Commission (EU government) Jean-Claude Juncker said that "we also want European firms to succeed in the global market," but Brussels will never give anyone preference for political considerations (a clear allusion to the dominant role of Germany and France in the EU).

According to Juncker, the EU antitrust authority gave the go-ahead to more than 6,000 mergers, blocking less than 30. "I am telling this to all those who claim that the European Commission consists of blind, stupid, hard-nosed technocrats," he added.

source: dw.de