June 07, 2003

Eurostasis

The Economist covers the apparent collapse of European Commissioner Frits Bolkestein's effort to make hostile corporate takeovers somewhat easier in Europe. In the Economist's view, German politicians (and managers, and bankers) don't want German industries owned by foreign companies, and Swedish politicians are very happy with having their industries run by the Wallenberg family. Both are extremely suspicious of the neoliberal proposition that lots of social value is generated by a hostile takeover.


Economist.com:

EUROPEAN commissioners often have to put on a brave face. Part of their job is to cajole and charm national politicians into signing up to new Europe-wide projects or rules, and they do not always succeed. Pity then Frits Bolkestein, the commissioner in charge of the single market. On May 19th, his latest effort to introduce a directive on corporate takeovers was stymied by what amounted to pork-barrel politics. He put on a brave face, but must have been utterly dismayed. It is quite likely that the directive is dead. The effort to create it has lasted some 14 years.

The fate of the directive reveals the failings of Europe's business-reform programme. A previous directive almost became law in 2001, but fell at the final hurdle in the European parliament after the Germans withdrew their support. The Germans were back in opposition this time, joined by the Scandinavians and British. Officially, a decision on the directive is postponed. In reality, there is unlikely to be further progress.

What motivates the opposition? The Germans fear that they might lose control of their big industries. Vodafone's hostile takeover of Mannesmann in 2000 scared corporate Germany witless. Scandinavians dislike the directive's one-share-one-vote principle. That betrays the influence of family dynasties, such as Sweden's Wallenbergs, who rely on multiple voting rights to keep control of their empires. And there is also festering frustration directed at the Commission because it has several times intervened on competition grounds to stop the formation of Nordic champions, most notably in banking.

But why on earth was Britain among the blockers? Here is where the pork comes in. Britain is fighting hard against a directive that would give more rights to temporary workers. It sided with the Germans on takeovers in return for support on that other front. Ironically, on May 20th, Gordon Brown, Britain's chancellor, gave a speech in which he said that he wanted Britain to play a much bigger role in liberalising the European economy and encouraging competition. Mr Bolkestein might remind him of that next time he presents the takeover directive, if there is a next time.

Lawyers in Brussels admit to a growing, general unease about the future of the single-market project. Liberalisation of the energy market is still delayed, thanks mostly to French intransigence. Financial-services reform is stuttering. Yet the Commission seems reluctant to use its full powers to force the pace. It has had some successes& -- a recent court ruling against golden shares, for example -- but these have had only a limited impact.

Another area where there is ongoing trouble is in merger control. To general approval late last year, Mario Monti, the competition commissioner, announced important procedural reforms after a series of decisions by his department suffered embarrassing rebuffs in court. Those reforms have not yet been implemented. Worse, a proposal for new merger guidelines proved so garbled in its central definitions that it had to be withdrawn. A replacement is expected in a few weeks.

The Commission's perceived weakness is encouraging bolder moves against it. Festival, an Italian cruise-ship operator, has issued proceedings aimed at overturning the merger of rivals Carnival and P&O Princess. The Commission approved the deal in February, but Festival says that the merger was not scrutinised properly.

General Electric (GE), a huge American conglomerate that was controversially frustrated in its effort to merge with Honeywell in 2001, is also back in the fray. The Commission's decision to block the Honeywell deal is subject to appeal, although that is moving only slowly to court. But GE wants to buy Instrumentarium, a Finnish medical-equipment maker. After objections from Philips, a Dutch rival, the Commission began a review last month. It is too early to know whether another cross-border spat is looming, but perhaps Mr Monti should practise putting on his own brave face. Just in case.

Posted by DeLong at June 7, 2003 08:29 AM | TrackBack

Comments

"Britain is fighting hard against a directive that would give more rights to temporary workers. It sided with the Germans on takeovers in return for support on that other front."

Who can blame the British government for this? Within the British regulatory framework, the takeover directive is hardly necessary, as hostile takeovers already are permitted. Only the competitiveness of countries like Sweden and Germany stands to suffer if this directive should fail to pass.

The proposed "rights" to be granted to temporary workers, on the other hand, stands to do tremendous damage to the British economy. The importance of temping to the British job market is hard to overstate, and there is no sane reason to accede to additional "rights" for temps if these "rights" mean a lot more temps will end up on the dole.

Therein lies the problem with the entire European project nowadays - for every step forward being taken, it seems there is at least one, and often several, being taken backwards, whether its' granting new "rights" to temporary workers, issuing onerous new legislation on pension investments, perpetuating gigantic agricultural subsidies, pushing for tax "harmonization" or enshrining a "right" to work in the proposed E.U. constitution.

The French and Germans see the E.U. as being as much about imposing "social democratic" overregulation on the rest of Europe as about removing trade barriers - which is one major reason why the British find the E.U. particularly unattractive.

Posted by: Abiola Lapite on June 7, 2003 09:19 AM

There are structural binds on the French and German labor markets, but I am sympathetic to the strength of labor unions that have sucessfully fought for the high quality of middle class life that has been realized in these economies. France and Germany, Sweden, are really democracies though we might wish otherwise when we wish for rapid labor market change. Were I a teacher or metal worker in Europe, I would be pleased to have the social benefit protections and most reluctant to have them changed too rapidly.

Posted by: anne on June 7, 2003 09:39 AM

"Were I a teacher or metal worker in Europe, I would be pleased to have the social benefit protections and most reluctant to have them changed too rapidly."

Of course you would, if you were one of the lucky ones with a job. Why would you mind policies that effectively create a cartel that insures you employment-for-life?

It's the rest of us, i.e, the immigrants, the non-white and the young, without the good fortune to already be holding a cushy union job, who have to pay for the stifling regulations that permit the "high quality of middle class life" of which you speak so fondly.

Do I sound bitter? Yes, I certainly am, as I'm speaking from painful experience here. Getting a job in Europe is extremely frustrating precisely because of the burden imposed by the regulations you seem to love so much. Companies that can't fire don't want to hire, and they are especially reluctant to do so if it means taking a risk with foreigners, minorities or the young.

Posted by: Abiola Lapite on June 7, 2003 10:31 AM

A foolish question??? How much have hostile takeovers helped the American economy? How much have friendly mergers helped? I suspect these are tricky questions. Right now I am not all that impressed with mere bigness, especially media bigness.

Posted by: jd on June 7, 2003 10:31 AM

International labor mobility presents all sorts of challenges, especially of course in times of slow growth. I am always sympathetic to the anyone who struggles to work, but I am sympathetic to the French and German labor unions and to Japanese families are are not convinced thaqt structural reforms that cut employment is really essential. Putting myself at the mercy of a German industrialist simply seems a lot less inviting than fighting for union strength or a strong social benefit program. Remember, France and Germany and Japan are democracies. The problems are difficult and will not be solved by fiat as the "Economist" appears at times to wish.

Posted by: anne on June 7, 2003 11:08 AM

Economists have all sorts of ideas about optimal resouce allocation, but politics is always there and politics must be taken to account. The "Economist" writers often seem to imagine only the British political system exists. Sorry, there are variants everywhere.

Posted by: lise on June 7, 2003 11:14 AM

Yes, and if the democratically elected German government wishes not to allow hostile takeovers in Germany, who is the unelected European Commission to argue otherwise? The Economist is dismissing the principles of national sovereignty and democratic accounatability as, simply, pork politics. Blair and Brown are no better, with their irritating lecturing of other countries in Europe to liberalise (as they push the British economy the other way).

If the Commission is really in favour of liberalisation, it should concentrate on agriculture, where European policies, have been catastrophic for the people of Europe for forty years, and abolish its distorting regional aid. But of course the Commission doesn't give a damn about liberalisation in itself - it only cares about promoting its own power (Commission officials are quite open about this if you get them drunk in a pub in Brussels, as I have done several times). It is happy to do this through protectionism and subsidies where this is appropriate, or through liberalisation where this suits it better.

Americans are lucky in having an ocean between themselves and the European Commission, and sometimes underestimate what a sinister force it is.

Posted by: PJ on June 7, 2003 12:24 PM

"Remember, France and Germany and Japan are democracies."

Indeed they are, and they're welcome to choose any policies they prefer. However, the EU is NOT a democracy, and even if it were, there's no reason the British or anyone else must be forced to adopt policies they don't want, simply because the French and the Germans do.

Not everything ought to be decided at the EU-wide level, but the notion of "subsidiarity" is one most champions of "ever closer union" find repugnant.

Posted by: Abiola Lapite on June 7, 2003 01:25 PM

"If the Commission is really in favour of liberalisation, it should concentrate on agriculture, where European policies, have been catastrophic for the people of Europe for forty years, and abolish its distorting regional aid."

This is not possible. We have a Senate in America, which means 2 Senators from each state. So a fairly small population of farmers in Iowa or Kansas have as much representation in the senate as mnay millions of concumers in New York City or Chicago or Los Angeles. America has farm subsidies and will continue to have them.

Why should we wonder that France and Germany have farm subsidies? The European Commission will NOT abolish farm subsidies. Could not, would not. Germany and France have not lost sovereign power in adopting the Euro, nor would Britain.

The European Comission is NOT more powerful than soversign legislatures in Europe. Yes folks, European states really are democracies. I even find them rather enjoyable.

Posted by: anne on June 7, 2003 01:45 PM

"Germany and France have not lost sovereign power in adopting the Euro, nor would Britain."

What world are you living in? Tell that to Gerhard Schröder and Hans Eichel, trying to reconcile ECB rates and a +3% deficit with more than 10% unemployment!

"The European Comission is NOT more powerful than soversign [sic] legislatures in Europe."

Not yet, anyway, but they're getting there, don't you worry! A few treaties more ...

"Yes folks, European states really are democracies. I even find them rather enjoyable."

No doubt the natives are friendly too. Europe is really quite picturesque when you aren't obliged to live your entire life there, isn't it? All quaint farmers carrying baguettes, gitane-smoking bohemians in berets, and Snow-White castles and stuff. Spare us the touristy nonsense, why don't you? Those of us who live here aren't here merely for your entertainment.

If there's one thing one can still be grateful for, it's that starry-eyed American tourists like you don't have the right to vote over here.

Posted by: Abiola Lapite on June 7, 2003 02:38 PM

Does anyone find "France, Germany, and Japan are democracies" a very weak rationalization for bad policy? According to that criterion, no democratic state can ever be in error. Yep, Michael Powell sure is right to allow all of the U.S. media to become dominated by a few key corporations, and those Japanese museums in small towns with nothing in them? Surely an optimal use of public spending! After all, the United States and Japan are (basically) democracies!

Here's the part where I find myself inexorably dragged to Mark Bahner's talking points, yelling "JUST BECAUSE A MAJORITY OF PEOPLE WANT IT DOESN'T MAKE IT GOOOOOD!"

Please! I don't want to be turned into a libertarian (nothing against 'em, as straight guys who are secretly afraid of being gay but don't want to appear homophobic say, when asked), so please don't accept policies a priori just because a democracy implemented them! Let's discuss regulations against hostile takeovers on their merits, not their legitimacy.

As for the merits... uh... I'm not really sure about that issue. I've heard hostile takeovers tend not to be profitable, because of the reduced morale from them, but I suppose that's more an issue for the acquirer than the acquired.

Posted by: Julian Elson on June 7, 2003 05:07 PM

The reason these pro-market schemes are getting stalled is (to some extent at least) because the Commission has lost clout. Gotta make right wing eurosceptics heads explode.

Posted by: David Weman (Europundit) on June 8, 2003 01:38 AM

"'The European Comission is NOT more powerful than soversign [sic] legislatures in Europe.'

Not yet, anyway, but they're getting there, don't you worry! A few treaties more ..."

The Commission has lost more and more power to the Council, and lately continuously since the sixties. The constitution will be a further step in that direction.

"Within the British regulatory framework, the takeover directive is hardly necessary, as hostile takeovers already are permitted. Only the competitiveness of countries like Sweden and Germany stands to suffer if this directive should fail to pass."

But British firms can't launch takeover bids as it is.

Posted by: David Weman (Europundit) on June 8, 2003 06:04 AM

"The reason these pro-market schemes are getting stalled is (to some extent at least) because the Commission has lost clout. Gotta make right wing eurosceptics heads explode."

It's mainly because the Commission is overreaching itself more and more into areas with only tenuous links with the implementation of the single market. After all, if the Commission didn't have the single market, it wouldn't really be able to point to a reason for its existence. The Common Agricultural Policy is a complete disaster, the regional aid packages are entrenching permanent welfare dependencies and corruption in the poorer parts of Europe, and the foreign and security policy pretensions it had, have falled apart completely in the last few months. As the Economist once pointed out, there are only three Commissioners with real jobs - the rest are a waste of money.

I have worked in Brussels, and the massive overstaffing, together with the constant demands for more policy-related work (translation - more misdirected interference in national life) made me think I'd landed in a lunatic asylum.

Posted by: PJ on June 8, 2003 08:43 AM

Just some comments from Europe. To most people thinking positive about the achievements of labor unions and social- and christian-democrats “Hostile take-overs” don’t sound attractive (at first sight). Somehow it reminds of take-overs in the US (in the eighties I think were most of them; based on money that was lent) were the corporation taken over was split; selling the better parts with a good profit and leaving the other parts to die. In that days I considered this to be another example of “cowboy-capitalism” and all bad. Last year I launched a proposal to LIMIT THE SIZE OF CORPORATIONS (can be found on my website; with an interesting reaction of Götz Drauz, Director, European Commission Merger Task Force) and I am thinking more and more about (ab)use of market-power. Were a hostile take-over (except of course in the case of acquiring monopolistic features) is profitable there must exist a situation were some good parts of a corporation support weaker parts. That weak parts have an unfair advantage on THEIR competitors. This should be avoided. Of course the workers of the weakly managed parts of the corporation deserve protection but this is a different matter.

Posted by: FransGroenendijk on June 9, 2003 04:41 PM
Post a comment