By Phedon Nicolaides, European Institute of Public Administration (EIPA), Maastricht
During the recent European Council meeting, French President Nicolas Sarkozy succeeded in having the words "undistorted competition" deleted from the objectives of the future EU Treaty. Reportedly, their exclusion from the objectives of the Treaty will be tempered by the inclusion of a Protocol on competition.
Legal experts and competition professionals have condemned this meddling with one of the fundamental principles of the European Union. They have correctly pointed out that much of the success of the EU in building a market with fairly free trade is due to the fact that the Treaty bans private practices or public policies that weaken competition.
They have also claimed that any Protocol on competition will not have the same value as a clear statement that competition is an EU objective and that the European courts in Luxembourg may interpret the protocol as assigning less importance to competition.
This may be an exaggerated claim. The present Treaties on the European Union and the European Community do not mention competition in their list of objectives. They only refer to the creation of an "area without internal frontiers" and a "common market", respectively. The Courts, however, have ruled that these concepts are meaningless in the face of business or policy obstacles to competition. It is unlikely that the judges in Luxembourg will change their interpretation simply because the new EU Treaty will not refer to competition as being an aim of the EU.
Even when EU leaders were successful in the past to broaden the aims of the EU in directions that seemed to weaken competition, the courts did not interpret the concept of competition differently. The case in point is the inclusion in the 1997 Treaty of Amsterdam of a reference to "the place occupied by services of general economic interest in the shared values of the Union". This caused dismay at the time among competition experts. Yet, there has never been a court case since then that led to weakening of the application of competition rules to these services. If anything, the rules have been tightened up and they are less accommodating of government interference.
The problem is not the future application of the provisions of the treaty that ban anti-competitive behaviour. The problem is the failure of politicians to recognise the benefits from free competition and trade.
It is disheartening that the Dutch government has sought to dilute EC rules on state aid to services of general economic interest. Apparently, it wishes to subsidise them at will. The EC Treaty does not prohibit governments from supporting essential economic services. It only requires them to do so with the least possible distortion to competition. If governments subsidise inefficient providers of these services in the end they defeat the very purpose that justifies public support of these services. That justification is the provision of inexpensive and high-quality services to consumers who may need and deserve them but may not be able to afford them. Even if EU rules did not exist, member-state governments would have to invent them to ensure adequate supply of high-quality services to their citizens.
Neither does the EC Treaty prohibit governments from rescuing companies which are important to the local economy. It only requires them to ensure that any assistance that is granted is capable of restoring the long-term viability of those companies. Again, this is prudent use of public money. The French president has expressed his support of a strong industrial base. It will not be achieved by pouring taxpayers' money in inefficient companies.
A recent study undertaken for the European Commission has found that about a quarter of the companies that receive rescue or restructuring aid do not survive more than five years after the injection of public subsidies. Our own research at EIPA has indicated that governments have been willing to spend public resources to save companies with miniscule market shares. It cannot be that such companies are vital to the national economy. It is more likely that they are vital to the constituency of the politician that made the decision to rescue them. This casts serious doubt on whether public money is used properly and for the broader social interest.
The EU suffers from a problem of legitimacy partly because politicians are too eager to blame it for the failings of national policies. Because they claim they are concerned about social welfare, they imply that the EU just promotes heartless competition. Nothing could be further from the truth. Yet, it will not be surprising if citizens oppose the new EU Treaty because the EU is portrayed as being irrelevant to their concerns. Will politicians bear responsibility for another public rejection of an EU Treaty?