European Diary:Internal market commissioner Charlie McCreevy pulled no punches in a policy address on "economic nationalism" at the London School of Economics last month, writes Jamie Smyth
The former finance minister and economic liberal talked tough in a speech that warned politicians to stop interfering in cross-border mergers in Europe.
"Be it in banks in Italy or Poland, a steel company in Luxembourg, energy companies in Spain and France - everywhere you see the same outdated instinct, the same recipe of protection of the status quo, of governments prompting national champions, of shutting out competition," he said. "Does anyone really think that I am going to turn a blind eye to the cosy old-boy networks between politicians and managers of companies? If they do, they are living in a fool's paradise." Strong words. But clearly Spanish prime minister José Luis Rodriguez Zapatero wasn't listening.
Last week the socialist leader claimed victory in an epic battle to prevent German energy giant E.On taking over the Spanish utility Endesa. Zapatero has taken unprecedented action to block the merger, such as pressurising Spain's energy and stock market regulators into opposing E.On's bid and introducing new merger laws via ministerial decree. When this failed to put off the German firm, Madrid encouraged Italian and Spanish energy companies, Enel and Acciona, to join forces and mount a rival multibillion euro bid for Endesa.
E.On's interest in Endesa first emerged when another Spanish firm, Gas Natural, bid for the electricity and gas firm in September 2005, promising to create a national energy champion. The bid quickly gained political support from Zapatero, who said he favoured a "strong energy company" capable of becoming a world leader.
Within a few months E.On tabled a higher bid for Endesa. In February 2006 E.On chief executive Wulf Bernotat presented the bid to Endesa shareholders. He later held a meeting with Zapatero, who warned him the German bid for Endesa was "not welcome".
Never one to give up easily, Bernotat, a former lawyer, embarked on a year-long charm offensive and raised E.On's bid to a massive €42 billion.
He enlisted the support of German chancellor Angela Merkel and the European Commission, which have piled political and legal pressure on Zapatero. Brussels has referred Madrid to Europe's highest court and warned that its actions could spur further acts of economic nationalism in Europe. But last week Bernotat finally gave up on Endesa, admitted that obtaining a majority stake "was impossible".
The announcement drew a stark warning from the EU executive. "The risk is that if governments pay no respect to EU law, then the single market will descend into chaos," said competition commissioner Neelie Kroes, who indicated that the commission will continue to pursue Spain at the European Court of Justice.
But the commission's powers to prevent states interfering in cross-border mergers are limited. "Filing lawsuits against rule-breaking member states in the ECJ in Luxembourg can take years to resolve and may not guarantee results that are consistent with a single market," writes international trade expert Raymond Ahearn in a policy paper for the US Congress.
The takeover directive (the EU law governing mergers) also contains exemptions and leeway for member states to adopt various kinds of anti-takeover defences, concludes Ahearn, who pinpoints several recent examples of "economic nationalism", including French opposition to a possible bid by Enel for French utility Suez; France and Luxembourg's opposition to Mittal's bid for the steelmaker Arcelor; and Polish government opposition to the proposed merger of Polish subsidiaries of Italian bank UniCredit and the German bank HVB.
Fears of job losses, blows to national prestige and a loss of control over former state firms are factors motivating Europe's politicians to interfere in cross-border mergers. But their actions threaten to have a debilitating effect on the EU single market.
It is against this background that McCreevy will embark on his key task for 2007: a review of the EU single market. Two weeks ago at the European Parliament he pledged this review would prioritise measures to make it easier for individuals and firms to engage in cross-border activities. But as the E.On/Endesa merger case starkly illustrates, McCreevy will need more than a few strong words to stop politicians from meddling in corporate takeovers in Europe.