EU merger control in an age of geopolitics

Growth and competitiveness have been at the heart of the European Union’s strategic objectives since its early beginnings. Now, however, there is a strong perception that on both parameters, the EU is lagging behind other economies, and particularly the US. The 2024 Draghi Report¹ and the earlier Letta Report² both raised multiple red flags, and instigated great debate and numerous initiatives, epitomized by the upcoming Industrial Accelerator Act.³ President Macron’s ‘strategic autonomy’, resilience and supply chain security feature in almost every policy discussion in Brussels.

It is no surprise that competition law in general and the control of mergers and acquisitions in particular are included in the recommendations of the Draghi and Letta Reports. In addition to the obvious link with competitiveness, competition law and especially merger control are areas where the European Commission wields enormous power of direct intervention in the private economy, which it exercises with great vigour and fierce independence.

Importantly, the Draghi Report correctly posits that there is an inherent tension between the way in which competition law has been applied traditionally (to protect ‘free and fair competition to create a level playing field for undertakings based in any Member State’)⁴ and some of the key objectives proposed by the Report:

'In particular, there is a question about whether vigorous competition policy conflicts with European companies’ need for sufficient scale to compete with Chinese and American superstar companies. Likewise, the lack of innovation in Europe is sometimes blamed on competition enforcement. Although stronger competition will in theory generally both lower prices and foster innovation, there are cases where it can be harmful to innovation. … While it is true that businesses support competition, typically as long as it is not in their own industry, in some cases the Commission has come under attack for not allowing mergers that would create companies of sufficient scale to invest to compete with Chinese and American superstar companies.'⁵

The Draghi Report makes several recommendations on merger control. Most importantly for this BIG Policy Briefing, it argues that a ‘security and resiliency assessment could be performed when these dimensions are relevant and, for those sectors and firms that are strategic, but this should be done outside the Competition unit (e.g. by a Resiliency Assessment Body)’ and that ‘[t]his assessment should then be used as an input for DG COMP as an additional public interest criterion’.⁶

The Commission is currently revising its Merger Guidelines, the main interpretation and guidance instrument that explains how it applies the EU Merger Control Regulation (EUMR)⁷ in practice. It is under a lot of pressure to integrate geopolitical and industrial policy considerations (such as security and resiliency) into the analytical framework for its merger review – an old debate that has now returned with a vengeance.

This BIG Briefing suggests that, as the Draghi Report appears to argue, geopolitical considerations should be kept separate from the traditional competition review. However, contrary to the Draghi recommendation, we argue that the geopolitical analysis should be applied outside of the competition context and by a different authority. The integration of geopolitical arguments in the Commission’s analysis under the EUMR would undermine the predictability of the merger control regime, which is based on robust economic analysis, and the Commission’s independence from political influence.

In addition, it is not necessary for geopolitical and non-competition considerations to taint the European Commission’s competition merger control policy. Member states have quite significant powers to intervene in mergers, without having to interfere with the Commission’s powers under the EUMR. Most importantly, national foreign direct investment laws allow member states to take measures against proposed transactions if they go against certain national interests. Article 21(4) of the EUMR also provides for such interventions. In other words, there is no need for a drastic change in the EU’s competition law or practice.

It is essential to find the right balance in this discussion. While it is important to address the strong political push for geopolitics to play a bigger role, including when it comes to the effects of mergers and acquisitions in Europe, this should not be done in a way that undermines the important achievements of 36 years of EU merger control.

‘Competition policy is a side dish’

With this quip, the then outgoing Director-General for Competition, Olivier Guersent, caused uproar in 2024.⁸ He was, however, correct: competition law is, and should be, just that. Competition law enforcement should not be blamed for all the flaws in the internal market and EU competitiveness. And it should not be used for purposes different from or beyond those it was designed for.

As Guersent clarified in a later statement, ‘I thought it was clear that what I meant is that other policy instruments, such as direct regulation, should be central in addressing the broader concerns raised around resilience and strategic autonomy, and that we should not charge competition policy with missions it cannot deliver on its own.’⁹

Specifically for merger control, the EUMR determines that the Commission will take enforcement action if (and only if) a given transaction is likely to result in a ‘significant impediment of effective competition’ in the common market or part thereof.¹⁰ The EUMR is clear: the Commission’s merger control review is limited to economic competition considerations, and does not include any public interest review that might take into account geopolitical considerations, like security or resilience. If anything, the EUMR is clear in its Article 21 that if any such considerations need to be applied, it is up to the member states to do so.

This does not mean that the European Commission is somehow limited in its powers. Far from it. It has an enormous leeway in how it applies its economic competition analysis.¹¹ In addition, unlike the US authorities at the Federal Trade Commission or the Department of Justice, who can challenge a merger only by going to court, the Commission itself decides on the fate of transactions that come across its desk. It does not need a court’s permission. As a result, the European Commission is one of the most powerful competition authorities in the world, and it is known for being at the forefront of merger control enforcement. It has used its powers to develop and apply novel competition theories such as, recently, innovation competition¹² or the strengthening of dominance resulting from the combination of non-competing products.¹³

The Commission is also one of the most respected authorities in the world. For example, in the Global Competition Review’s annual Enforcement Rankings, the European Commission consistently ranks at the very top, rivalled only by the German Bundeskartellamt.¹⁴ It is clear that when it comes to global merger control, the Commission’s enforcement powers and policy are anything but a side dish.

Siemens/Alstom

Given that the EUMR is such a powerful instrument, which allows the European Commission to intervene directly in key decisions taken by private economic actors, both companies and member states have tried over the years to influence the Commission’s decision-making process, often using arguments that go beyond (or conflict with) pure competition analysis.

The transaction that probably caused the biggest headlines in this context was the proposed acquisition of France’s Alstom by Germany’s Siemens, which the Commission prohibited in 2019¹⁵. The merger would have brought together the two largest suppliers of various types of rail signalling systems and of rolling stock in Europe. The proposed merger was backed by the French and German governments and hailed as leading to the creation of a true ‘European Champion’.¹⁶ The key argument of the parties was that, while their combined market share in Europe was high, the transaction was necessary because of the projected competition from one or more strong Chinese players. The Commission investigated these claims thoroughly but ultimately rejected them, inter alia relying on the parties’ own internal documents, which – according to the Commission’s decision – demonstrated that Siemens and Alstom themselves considered such Chinese competition to be uncertain and relatively far removed in time.

The prohibition caused something of a backlash, especially from the French and German governments. Chancellor Angela Merkel openly criticized the Commission’s decision,¹⁷ as did France’s finance minister at the time, Bruno Lemaire.¹⁸ The two governments embarked on a campaign to amend the EUMR to enable the creation of European champions to make European industry more competitive against foreign players.¹⁹ The proposals were met with strong objections from a large number of other (often smaller) member states, and ultimately died a quiet death (even though some may say the current resiliency debate is a continuation of those earlier Franco-German efforts). It is interesting to note that the Franco-German manifesto for EUMR reform included a proposal to consider ‘whether a right of appeal of the Council which could ultimately override Commission decisions could be appropriate in well-defined cases, subject to strict conditions.’ As discussed below, such a right of appeal would create one of the strongest possible methods for political intervention in the Commission’s merger control policy.

At the same time as the Siemens/Alstom review, the Commission was also reviewing another transaction aimed at creating a ‘European Champion’, the proposed acquisition of the French shipbuilding activities of STX by Italian Fincantieri.²⁰ Despite having strong support from the French government, it was ultimately abandoned (on 10 February 2021), after a protracted review and the issuance by the Commission of a robust ‘statement of objections’ on 13 January 2021.

The European Commission has a long tradition of resisting political pressure by prohibiting European or national champion transactions,²¹ or by imposing very significant remedies as a condition for approval.²² In some cases, questions were raised as to whether non-competition or industrial policy considerations played a role in the Commission’s approvals,²³ but overall, the Commission has always fiercely defended its independence in competition cases. Occasionally, this has led to criticism from within Europe (as in the Siemens/Alstom aftermath) or even from other authorities, such as the polemic that was created by the Commission’s decision to block the proposed acquisition of Honeywell by General Electric.²⁴ The deal, involving two iconic US conglomerates, was approved by the US Department of Justice (DoJ) but blocked by the European Commission, leading the DoJ to publicly denounce the Commission’s decision.²⁵ Sometimes, the Directorate-General for Competition is even criticized by other departments within the European Commission, especially in cases involving European champions.²⁶ Still, in this author’s opinion, the Commission’s independence and its relentless focus on competition issues – and competition issues only – has contributed to its position as one of the foremost competition authorities in the world.

Review of the Merger Guidelines

In the wake of the Draghi and Letta reports, when the newly elected Commission came to power at the end of 2024, President Ursula von der Leyen tasked Competition Commissioner Teresa Ribera with modernizing EU competition law, including a ‘review of the Horizontal Merger Control Guidelines [which] should give adequate weight to the European economy’s more acute needs in respect of resilience, efficiency and innovation, the time horizons and investment intensity of competition in certain strategic sectors, and the changed defence and security environment.’²⁷

In other words, the long-standing discussion about the role of industrial policy and geopolitics in merger control is back at the top of the agenda. The Directorate-General for Competition (DG COMP) has launched a wide-ranging review of both the Horizontal and Non-Horizontal Guidelines, which should result in a new version being adopted in early 2027 (on the current projected timeline).²⁸

As part of its review proposal, DG COMP is assessing whether resilience can and should be a consideration in merger control.²⁹ According to the Commission’s review proposal, ‘In recent years, resilience has been a concern of particular relevance in the areas of security and defence, as well as other critical industries (e.g., chips manufacturing), critical inputs (e.g., certain raw materials) and critical infrastructure (e.g., broadband submarine cables).’ But the proposal immediately adds that ‘[m]erger control can take resilience into consideration as long as it is relevant for competition on the markets concerned’.³⁰

In other words, DG COMP appears to limit the insertion of resilience into merger control analysis to the extent that it does not clash with the competition analysis. It then goes on to give examples of how this can be done. For example, DG COMP could consider whether a merger is likely to increase the incentives and ability of the merging parties to innovate better and more, or to make additional investments.

In any event, this is a positive for merger control. Although the Commission is undoubtedly one of the stronger competition authorities globally, it has been criticized, for example, for not taking sufficient account of dynamic competition effects or the efficiencies and synergies that a merger can generate, and whether those efficiencies are capable of offsetting potential anticompetitive effects of the same merger.³¹ The European Commission could also strengthen its counterfactual analysis as part of its overall competition analysis, i.e. what would the competitive situation be ‘but for’ the proposed merger?

In other words, the review of the Merger Guidelines presents an opportunity to upgrade and improve the Commission’s competition analytical framework. Although not necessarily easy, the Commission should take account of dynamic effects of competition and mergers, as well as incentives for merging parties to innovate and invest. And all this should continue to be based on solid economic analysis and evidence. What the Guidelines Review should not do is introduce non-competition considerations into its merger analysis, and certainly not those considerations that clash with the competition analysis.

EUMR versus industrial policy and geopolitics

Does this mean that geopolitics and industrial policy considerations should play no role at all in EU merger control? Would that not be naïve and leave the EU exposed, given that China and the US have espoused (openly or not) such considerations in the application of their antitrust and competition laws?

Not necessarily. First, there is validity to the European Commission’s traditional position that strong competition will lead to more competitiveness, which in turn will lead to more robust (and resilient) European markets. This implies that there should be no need for non-competition industrial policy considerations to be inserted into merger control, because competition analysis will lead to results that are aligned with the EU’s industrial policy objectives, including those of resilience and security of supply.

Second, it may be that there is consensus that in some cases, competition policy alone (even if upgraded and improved after the Guidelines Review) will not achieve certain industrial policy objectives, including creating sufficient scale, innovation and investments for European companies, or resilience, security of supply or European strategic autonomy. If this is the case, and the political will exists to address this gap, then the European Union should find a way to do so.

The key point is that any such measures should be taken outside of the scope of the EUMR. This is for several reasons, as follows from the above discussion:

• The EUMR imposes a very clear analytical framework, embedded in competition economics, with the sole objective of preserving effective competition in the EU to the benefit of companies and consumers, and avoiding the creation of dominant positions or other significant negative effects on competition.
• The European Commission, and specifically the Commissioners responsible for competition together with DG COMP, have generally been rigorous in the application of competition rules. In doing so, they have been strict in excluding political considerations that would clash with the outcome of the competition analysis, including by firmly asserting the Commission’s independence from outside pressures, both from member states and from other constituencies.
• The Commission’s independence and strict adherence to analysis embedded in competition economics have created a system of merger control that is transparent and predictable. Many may disagree with the outcome of the Commission’s analysis in specific cases, and it is certain that the quality of the analysis can be improved (which should be the objective of the Guidelines Review). However, there is a reason why the Commission is consistently ranked as one of the world’s most respected competition authorities.
• Despite not necessarily agreeing with the rules or their application, merging companies (both European and non-European) know what to expect when sending their transaction to Brussels for review. Predictability of the regulatory system is key to creating an attractive business environment. Inserting inherently arbitrary political considerations into the competition analysis would negatively affect the predictability of EU merger control.
• Member states are unlikely to be ready to cede control over geopolitical considerations to the Commission.

Geopolitics as a prerogative of member states?

Although some member states have tried to influence politically the decision-making process under the EUMR in the past, it is equally clear that they have jealously guarded their powers to enforce key decisions on issues like public security and public order.

First, the EUMR itself confirms that the core public security and public order decisions remain with the member states. Article 21 EUMR determines that the EC has sole jurisdiction to apply competition law to mergers and acquisitions with an EU dimension. However, Article 21(4) specifies that member states can take appropriate measures to protect their legitimate interests, such as public security, media plurality or prudential rules. Other ‘legitimate interests’ need to be communicated to and vetted by the Commission before measures can be taken affecting a transaction with an EU dimension.³² It is important to note that while this is not stated explicitly in the text of the EUMR, it appears to be accepted that Article 21(4) does not allow member states to permit a merger that was prohibited by the Commission.³³

Second, member states continue to hold the monopoly over screening foreign direct investments. In the legislative work for the original FDI Regulation,³⁴ as well as in the currently ongoing revisions of the Regulation, there was considerable discussion about the potential role of the Commission and member states in influencing the screening processes of other member states.³⁵ However, in the end, both the original Regulation and the political agreement that will be the basis for the amended Regulation leave the decisions on FDI overwhelmingly with the individual member states. Importantly in the context of this BIG Briefing (and perhaps also for the interpretation of Article 21(4) EUMR), the FDI Regulation provides insight into how the concepts of ‘security’ or ‘public order’ should be interpreted. Paragraph 13 of the Preamble states:

In determining whether a foreign direct investment may affect security or public order, it should be possible for Member States and the Commission to consider all relevant factors, including the effects on critical infrastructure, technologies (including key enabling technologies) and inputs which are essential for security or the maintenance of public order, the disruption, failure, loss or destruction of which would have a significant impact in a Member State or in the Union.

Not only does this suggest a broad interpretation of concepts that are traditionally seen as being within the powers of the member states, but the language is also close to the concepts of ‘security and resiliency’ that the Draghi Report recommends should be part of the assessment of mergers.

Note that the inability of the Commission to secure a decision-making role in the context of FDI screening in the FDI Regulation was one of the factors that led to the adoption of the Foreign Subsidies Regulation (FSR),³⁶ for which the legislative work started at the same time as the 2019 publication of the FDI Regulation. The FSR creates a merger control regime parallel to the EUMR for transactions that involve the acquisition of companies with significant activities in the EU where the acquirer received subsidies from non-EU countries. The test for review by the Commission is whether the foreign subsidy distorts competition in the EU ‘where a foreign subsidy is liable to improve the competitive position of an undertaking in the internal market and where, in doing so, that foreign subsidy actually or potentially negatively affects competition in the internal market’.

The test is vague and linked to the EU State Aid rules³⁷, but with obvious links to or overlaps with the EUMR test. An ongoing review of the FSR³⁸ by the Commission shows that companies find it hard to navigate the test.³⁹ The European Commission’s attempt to take some action on the geopolitical front has turned out to be a vague and burdensome instrument, the benefits of which remain – at least for now – very uncertain.

As a conclusion, not only are there strong reasons why the Commission’s competition review under the EUMR should not be tainted by geopolitical considerations, it is also very doubtful that member states would want to entrust the European Commission with such power.

What can be done?

Based on the analysis above, it may well be that the current combination of EUMR enforcement by the European Commission (including new and improved competition review criteria in the revised Guidelines) and FDI enforcement by the member states (including closer coordination among member states and with the Commission)⁴⁰ will be sufficient to achieve the resilience and security objectives brought forward in the merger control sections of the Draghi Report.

As mentioned above, the Draghi concepts of security and resilience do not appear too far removed from those of public security or public order, under Article 21(4) EUMR or under the FDI Regulation. As such, faced with a transaction that requires measures to achieve security or resilience objectives, member states could coordinate and cooperate as set out in the FDI Regulation (especially in its revised form), or do so under Article 21(4) EUMR.

As the Draghi Report suggests, such coordination between the member states’ activities under their respective national FDI laws could be organized by a new body. Draghi calls it a ‘Resiliency Assessment Body’ but does not give further specifics as to the composition or powers of such body. The Draghi Report mentions only that it would issue advisory opinions which the European Commission could take into account in its merger control decisions.

The approach suggested by this BIG Briefing would be different. The new body can organize discussions between member states whose respective FDI laws apply to a given merger, to avoid inconsistent outcomes and ensure that Union-wide security issues be taken into account. This would be closely aligned with what the draft new FDI Regulation is proposing. Such a body could be organized at the level of the European Commission itself (for example in DG Trade) or at the level of the Council – such as for example the European Economic Security Council, proposed in a recent BIG Report.⁴¹

This approach has several benefits:

• There should be no need for legislative action, given that the necessary instruments are in place now.
• Relevant measures are decided by the member states, in accordance with their prerogative to control issues of public security and public order.
• The Commission does not need to insert political (and potentially arbitrary) considerations into its EUMR review process, which is based on facts and economic analysis.

Of course, the missing element in using existing powers under the EUMR and the FDI Regulation is that these do not allow member states to permit a transaction prohibited by the Commission. Article 21(4) EUMR and the FDI Regulations allow member states to take measures against transactions. They can impose conditions above and beyond those that the Commission may have imposed pursuant to its competition analysis. And such conditions can potentially be so severe that companies decide to abandon the proposed transaction. However, neither the EUMR nor the FDI Regulation permits member states to undo a Commission prohibition or to cancel conditions it has imposed.

In case there is the political will to establish such a political override of a Commission decision, precedents exist under national competition laws, including in France and Germany.

For example, in relation to the German ministerial authorization (Ministererlaubnis), Section 42.1 of the German Competition Law states that: ‘The Federal Minister for Economic Affairs and Energy will, upon application, authorise a concentration prohibited by the Bundeskartellamt if, in the individual case, the restraint of competition is outweighed by advantages to the economy as a whole resulting from the concentration, or if the concentration is justified by an overriding public interest.’⁴²

The Ministererlaubnis has been controversial in Germany as it arguably diminishes the independence of the German Competition Authority, and because the grounds for the political override are both broad and vague. As a result, in practice, the override has been applied only in very few cases. The same is true of equivalent provisions in other member states.

As mentioned above, in the wake of the European Commission’s Siemens/Alstom decision, Franco-German proposals to overhaul EU merger control raised the possibility of creating a political override in the hands of the Council of Ministers. At the time, opposition to the proposal was fierce, from both the legal and the business community, and eventually even the French and German governments recognized that it would be difficult to transpose the existing national political overrides to EU law.⁴³

If, in spite of these objections, the European Union decides to change the EUMR to allow for some type of political override of the Commission’s merger control decisions, it will be important that such legislative amendment sets clear limits to the Council’s powers, in terms of the scope of application, and imposes clear criteria, process and timelines, taking into account the importance of both predictability and proportionality. Anything short of that is bound to seriously undermine the robust system of merger control that the European Commission has built up over the past 36 years.