Competition policy as a promoter of the Single Market

SPEECH/06/245 Neelie Kroes European Commissioner for Competition Policy Competition policy as a promoter of the Single Market The Kangaroo Group Brussels, 25 th April 2006

Thank you for inviting me to speak to you today on competition policy as a driver of the internal market. It s great to be here with the Kangaroo Group. By the way, I should tell you that I did my homework and found that the dictionary cites three other collective nouns for kangaroos you can have a herd of kangaroos, a troop of kangaroos or even a mob of kangaroos! But I m not sure that any of these terms are really appropriate for your distinguished and long-standing network so I ll stick with the term Group! You take your name from an animal renowned for its great bounding strides. Europe s economy needs just such a leap forward if we are to remain competitive for generations to come. As Competition Commissioner, my job is to ensure that Europe s markets provide a level playing field for business. Just the right platform, if you like, to launch such a leap forward. So my work is firmly grounded in the broader context of the renewed Lisbon strategy for jobs and growth. It is after all the number one priority of this Commission. I also think that it is the kind of pragmatic common European project that the Kangaroo Group has been supporting since its formation. The renewed Lisbon strategy is geared towards increasing growth and jobs across 25 Member States which are more and more interdependent. Much of the core reform work falls to be done at national level. But the European level clearly has an important contribution to make and the European Commission fully assumes its role as facilitator in this partnership. In its Annual Progress Report adopted at the end of January the Commission assessed the National Reform Programmes prepared by each of the Member States last year. The first conclusion is that renewed governance structures work much better. There are fewer procedures and fewer reports. It is much easier to see who is responsible for what and by when. At the Spring summit the European Council committed itself to implementing a number of concrete actions in four key areas for the next steps in the Lisbon agenda: knowledge and innovation, a better business environment, jobs, and a European energy policy. The role of competition policy The European Council also endorsed the Commission s important conclusion that the Member States should take more concrete action to make markets more open and competitive. To achieve this objective requires patience and dogged determination. Competition and internal market policy must go hand in hand every step of the way. Competitive, open markets are also essential to ensure that companies are pressed on to deliver the innovative products and services which will be the must-haves of the future. And competition is the principal driver of innovation. The less competition, the less the pressure to innovate. And vice versa. I know which is better for consumers. And which is better for Europe s long-term sustainable growth. Today I would like to present two of the main initiatives we are taking to make markets more open, innovative and competitive in line with Lisbon. I will focus on our overhaul of the State aid rules and our action in the field of energy. 2

State Aid Action Plan 2005-2009 Starting with State aid. This is a powerful policy instrument and can be a doubleedged sword. It can be abused for example to artificially prop up failing companies and protect them from the rigours of competition. But it can also be used to help prepare Europe to be in a better position to take advantage of the opportunities of globalization. We must tailor our State aid rules in order to make it easier for the Member States to better target their aid on these core, Lisbon-related goals. That is a fundamental objective of the ambitious State aid reform programme I launched a year ago. In particular I want a more economics-based approach to help Member States focus public subsidies on projects which are good for overall growth and jobs but where the market by itself fails to deliver efficient outcomes. All of this is firmly in line with the European Council s call repeated just last month for less and better targeted State aid. We are already making good progress under the State Aid Action Plan, which will run until 2009. Last year we clarified the rules on financial compensation to services of general economic interest to give legal certainty to thousands of small public services whilst avoiding distortions of competition. We also overhauled the rules on regional aid to take account of enlargement, the need to focus aid on the most deprived regions in our Union of 25 and to create more flexibility for Member States to target SMEs and specific areas of with real needs. This year the focus is on adopting a new framework for aid to research and development. For the first time the new framework will also include groundbreaking measures on aid to encourage innovation. Furthermore the rules on risk capital will be revised to help more start-ups get the crucial first boost they need to get going. These reforms will particularly benefit SMEs. Our work is well advanced. Last week first draft guidelines on research, innovation and risk capital were sent to the Member States for consultation. I ll be reviewing the results and preparing a new draft later this year, also taking into account Parliament s views (and here please allow me a little advertisement the debate on Sophia In t Veld s report on this issue is scheduled for the Plenary tomorrow evening). My ambition is for the new rules on R & D and innovation to be in force by the autumn this year and the rules on risk capital already by July. I also want this State aid reform to deliver less and better in another sense. Less bureaucracy and better working methods. So a parallel objective of my programme is to create a better regulatory environment for business in general. So as part of our State aid Action Plan we will consolidate and expand the scope of the existing block exemptions into what we call a single super block exemption regulation. That means less bureaucracy, more transparency, and greater predictability good news for Member States and businesses alike. In a nutshell, our State aid policy reform is grounded on the principle of less and better targeted aid. I strongly welcome the refocusing of State aid so that more of the total state subsidy outlay is spent on horizontal purposes such as research and the environment. Virtually all Member States have committed to this in their National Reform Programmes. But this has to be done within an overall picture of a reduction in total State aid in the EU. 3

The contribution of competition policy in the field of energy The second issue I d like to address in more detail is energy policy. This is an excellent example of where competition policy hand in hand with internal market liberalisation directives - can play a crucial role. The European Council has just approved the launch of a European energy policy. Part of that commitment is to create more efficient and integrated gas and electricity markets. Work on the competition policy aspects of well-functioning European energy markets is well under way. Last summer I launched an in-depth inquiry into European gas and electricity markets. One of the benefits of the 2004 reform of EC competition rules is that the Commission is empowered to initiate such sector inquiries in specific markets when there are clear signs that competition is not functioning. When I came into office, I picked up just these signals about two key markets for European competitiveness financial services and energy. Our preliminary findings on energy clearly showed that there are major competition problems in the gas and electricity sectors. These include high levels of market concentration and vertical foreclosure, lack of integration between national markets and an absence of transparency and a general distrust in pricing mechanisms. We will draw final conclusions from the inquiry into the energy sector by the end of this year. This will enable the Commission to decide on the appropriate policy mix to address the competition problems identified. The mix will include competition enforcement and/or advocacy and, possibly, regulation. As you know, by the end of this year Member States should have implemented the second liberalisation directives. My work ties nicely with the conclusions Andris Piebalgs will draw about how this liberalisation process has gone and whether any new steps are needed. But we will not be inactive until then! I have sent clear signals to the market that if we find sufficient evidence of restrictions of competition created by particular companies we will take enforcement action before the conclusion of the inquiry. More competitive energy markets will contribute to efficiency and security of supply in many ways: First, more transparent pricing will boost confidence in the sector, a key precondition for the massive infrastructure investments required over the next decades, but also for investment in new environmentally friendly technologies. Second, wider and more integrated gas and electricity markets will be more attractive for external suppliers. Third, an open market will lead to a more efficient allocation of resources and thus better prices for private and business consumers. Liberalisation normally leads to a restructuring of the industry concerned. Any consolidation must obviously respect the merger and other competition rules and must not foreclose national markets. But equally, companies must be allowed to restructure it s a normal part of business. This process must not be undermined by unjustified barriers to cross-border mergers. 4

Cross-border mergers Mergers between companies based in different Member States are particularly likely to create strong European groups able to win on global markets and at the same time provide better choice and value to European industrial and domestic customers in support of the strategy for growth and jobs. That is why the Commission looks with great concern at the apparent trend in several Member States towards interference by national governments in the process of corporate mergers both in the area of energy and financial services. This is another area where we will have to be very vigilant in order to protect the integrity of the internal market, whilst assessing individual mergers in a fair, objective and coherent way. Conclusions I could give you numerous other examples of how competition policy can help to enhance the EU s competitiveness. But we have limited time and I m interested in a real debate with you. So let me conclude. The Strategy for Growth and Jobs is working. Competition policy alongside internal market policy - has an important contribution to make through measures such as those ones I have mentioned today: well designed State aid rules, sector inquiries and competition advocacy in services industries. The tough part implementation on the ground - is ahead of us. There is a need for a qualitative shift into a higher gear. I know that the Commission can rely on the European Parliament and on the members of this Group in particular to be reliable and enthusiastic partners in this. Together let s get Europe leaping ahead! Thank you for your attention. 5