German Minister of Economics suggests revising EU and German merger control regulations to enable the creation of European champions – and keeps FDI options on the table to prevent acquisitions by non-European players
The German Federal Minister of Economics, Peter Altmaier, published a paper on 5 February 2019 entitled “National Industry Policy 2030” which sets out the “strategical guidelines for a German and European industry policy” (to be accessed here in German). The paper aims to address the economic changes brought about by globalisation, protectionism and disruptive new technologies. It proposes a two-pronged solution to these developments: loosening EU and German merger control rules to benefit European-only mergers while maintaining a tight German Foreign Investment Control regime (the latter having only recently been amended, see here for more information).
In this paper, the Minister outlines the key technical competencies he believes Germany and Europe should better harness in order to keep up with international developments. The Minister expresses concern that, in the absence of such efforts, Germany and Europe will no longer be technological leaders and could forgo the chance to become such leaders in the future. The paper focuses in particular on the following areas of growth: digitalisation, platform economy, AI, autonomous driving, medical diagnostics and automation of production (i.e. the so-called Industry 4.0).
The Minister expresses his belief that a worldwide “renaissance” of strategies of industrial policies has taken place and states that only a few economically successful countries continue to rely solely on the power of the market without implementing such policies. The paper also identifies a rising global risk posed by the strategies of State players which promote fast expansion in order to conquer and monopolise new markets. The paper suggests two regulatory solutions to combat this:
(i) Looser merger control regulations: The Minister recommends creating national and European champions, or as he puts it in the paper: “Size matters!” This approach reflects a controversial political debate in competition law over whether EU merger regulation should be loosened to allow the creation of larger, European players on markets which are deemed to be global. This debate has become all the more topical in light of the European Commission’s veto against the Siemens/Alstom rail merger. The paper proposes that European and German competition law should be reformed to enable German and European companies to grow and better compete at an international level.
At the German level such an instrument already exists today: the so-called Ministerial approval which enables the Minister of Economics to approve mergers for macro-economic reasons if he deems the deal to be strongly in the public interest, even if the German Federal Cartel Office has vetoed the transaction because it significantly impedes efficient competition. Following the European elections this summer, the new European Commission may possibly face strong lobbying efforts from Berlin and Paris calling for the review of the EU Merger Regulation in this area.
(ii) Tighter FDI screening procedures: While the German paper condemns the growing tendencies of protectionism internationally, the Minister leaves open the option of using Foreign Direct Investment Control to prevent acquisitions by non-European players of strategically important German companies. The paper specifically refers to companies in the fields of technology and innovation, and more precisely platforms, AI and autonomous driving. In this respect, the Minister proposes to set up a “national investment facility” for the German State to invest in important companies and prevent their acquisition by non-European players.
The paper also states, somewhat vaguely, that the State should exercise its ability to intervene based on a “new principle of proportionality in political economy”.
The political positioning of the Minister comes as no surprise. As early as last summer, the Federal Government prevented the acquisition by Chinese investors of a 20% share in an electricity transmission operator by instructing the State-owned bank KfW to take over the target. In the aftermath of this transaction, Germany tightened its regulations on Foreign Investment Control (read our previous blog post on this topic here). Another example of the Federal Ministry of Economics intervening in this area was its attempt last year to convince large German companies to work together to set up a local battery cell factory in Germany in order to compete against Asian incumbents in this field. This new paper published by the German Federal Minister of Economics is therefore yet another example of the recent tendency of global and European governments to intervene in national economies. Other examples include the expansion of the CFIUS regime via FIRRMA in the US and the new EU rules for screening foreign direct investment.
Investors and other transaction parties should continue to closely monitor these developments and their effect on the timeline, process and execution of transactions in Germany.
Read our previous blogs on related topics here:
- No Christmas Presents for Foreign Investors: The German Government tightens regulations on Foreign Investment Control (again) and amends the anti-boycott provision
- New EU rules for foreign direct investment screening : One step closer to adoption and entry into force
- New EU framework for screening foreign direct investment
- The Foreign Investment Regulation Review: EU Overview
- New export control and CFIUS restrictions on emerging technologies becoming a reality
- New regulations expand CFIUS’ jurisdiction and mandate filings
- New UK foreign investment screening rules come into force
- Chinese walls? Germany reinforces the control of foreign investments