Monday 24 October 2016

Gazprom and Google cases show Europe is still good for something

Published 03/05/2015 | 02:30

GRINDING OUT a RESULT: Europe's Commissioner for Competition Margrethe Vestager at a briefing on the Google anti-trust case. Photo: Virginia Mayo
GRINDING OUT a RESULT: Europe's Commissioner for Competition Margrethe Vestager at a briefing on the Google anti-trust case. Photo: Virginia Mayo

Europe is a mess. At this juncture the single currency can only be adjudged to have been a mistake.

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The Greek crisis grinds on seemingly endlessly, draining political energy and distracting from the many other challenges the continent faces.

Instead of uniting the nations of Europe, the euro has ended up causing great division and rancour - and instead of containing Germany's natural dominance, particularly in monetary affairs, it has solidified its hegemony.

In some other areas where European states try to cooperate, matters are not a whole lot better. On foreign affairs, there have been achievements - something approaching unity on Russia and the possibility of a nuclear deal with Iran, for instance - but hopes that the Continent would punch up to its economic weight in the world are as distant as ever.

That the European project has lost its lustre in recent years is to be seen not only in Europe, but further afield too.

Where once many politicians, policy types and academics from around the world saw the sharing of sovereignty in Europe as a possible model for their own regions, there is much less interest today. Some show outright disdain for Europe's failings. Others believe that the European project was yesterday's idea and that the nation-state is the only effective instrument of governance for the 21st century.

This may well turn out to be the case.

It might be that Europeans allowed the ideology of integration to blind them into believing that "more Europe" is always better, the single currency being the most relevant and important piece of evidence in this regard. It could also happen that, in some considerable time, the euro's deficiencies are remedied, the project comes to be seen as a success and more federal structures exist for the eurozone.

The more likely outcome for Europe will probably be somewhere between these two outcomes. While the high water mark of belief in integration has most likely passed, the core of the EU project should continue to work - as the recent actions of European Commissioner for Competition Margrethe Vestager demonstrate (more of which anon).

To see where and why Europe works well, consider the three basic functions of the state - regulation, redistribution and the provision of security (internally and externally).

The EU doesn't do very much redistribution. It has little or nothing to do with welfare, health and education, the three big spending functions of modern government (all of which have a redistributive function).

Brussels has a budget of less than 1pc of the bloc's GDP and however strong the logic may be to increase it - most particularly, in the context of making the euro work better - there is simply no prospect of any significant increase for as far into the future as one can see.

On security, the EU continues to chip away at forging common positions in the world - but when push comes to shove, national interests prevail over the European interest (whatever that may be).

Internally, the EU's 'justice and home affairs" competence seeks to make citizens safer by cooperating on cross-border crime and terrorism. Arguably, with institutions such as Europol and tools including the common arrest warrant, the EU has proved better at making a difference to internal security matters than to external ones.

So, judged on its record of security and redistribution, the EU hardly amounts to much when it comes to new ways of governing above and beyond the nation state.

But it is the dull-sounding function of regulation where the EU is the superstate that some of its critics label it. A classic case is the regulation of chemicals.

We know that some chemicals can be detrimental to human health and the environment, and that some of the effects take time to manifest.

It is also clear that owing to the nature of the industry (most pertinently, the high capital costs of the sector), company size is large. While it would be wrong to describe the industry as "oligopolistic", its big players have a lot of clout vis-a-vis national authorities.

Among the greatest levers they have in dealing with governments is the threat to relocate jobs from a jurisdiction if administration does something that they don't like (this, of course, has its upsides too - it can curb a government's foolish, populist and/or anti-enterprise tendencies).

But great corporate power tends to introduce a lowest common denominator dynamic into the regulatory formation process. And this can lead to under-regulation.

Because the EU is large and multi-national, and because Brussels is better insulated from lobbying pressures than national governments (though that, lamentably, may be changing), it is less prone to watering down rules at the behest of vested interests.

The 2007 Registration, Evaluation, Authorisation and Restriction of Chemicals (REACH) directive took effect. It is the most wide-ranging regulation of its kind in the world and now forms the global bedrock for standards in the industry. It is a good example of how cooperation in the EU context works well.

If the REACH law illustrates the EU's legislative role in regulation, the recent decisions of the aforementioned Margrethe Vestager to take cases against Google and Gazprom demonstrate the extent of the executive powers Brussels wields.

Both companies are hugely dominant in their sectors. And their sectors - technology and energy respectively - are among the most important for any economy in today's world.

The Commission believes that both might be abusing their power - by searches to favour client companies in Google's case, and in the case of state-owned Gazprom by charging some EU countries inflated prices for gas.

These cases would never have been taken if competition policy had not been Europeanised. Even the biggest member state would have a hard time influencing Google -and no chance at all of changing the behaviour of Gazprom, a tool of Russian foreign policy.

But because the EU single market is the largest in the world - bigger than that of the US and more than twice the size of China's economy - companies simply cannot afford to have their access to it restricted.

Therefore, if the competition authorities in Brussels decide on a course of action (and it is upheld by the courts if the company in question appeals it, as often happens) then they have little option but to buckle under.

Just how impactful these powers can be was illustrated a decade ago when the commission told mighty Microsoft to give choice to consumers who purchase its operating system on the web browsers they can use.

Another example came a couple of years earlier.

Two US companies sought to merge, and were cleared to do so by the US authorities, but the tie-up was vetoed by Brussels on the basis it would damage European consumers.

Although the Commission finding against General Electric and Honeywell did not in itself prevent the deal, as the companies were domiciled outside its jurisdiction, it had the same effect because the companies simply could not afford to allow the merged entity to be excluded from such a large market.

It is in these areas of "low" politics - the technocratic grinding out of complex legislation and enforcing competition - that the EU has been most successful.

It is in the more visible areas of "high politics" that things have tended to go less well.

The European integration process has famously lacked a reverse gear. If matters continue to go in the way that they have been in recent years, it might have to create one.

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