Speech by Neelie Kroes
Member of the European Commission in charge of the Competition Policy

Building a Competitive Europe - Competition Policy and the Relaunch of the Lisbon Strategy

Addressed to a conference at Bocconi University
Milan, 7th February 2005

Ladies and gentlemen, dear Mario,

I am pleased to be here, at Bocconi University, today. And amid such learned and well-informed company!

Introduction

I am proud that Mario [Monti] i invited me to come to Bocconi so early in my mandate. I would like to use the opportunity to give you an idea of my vision for the European Union.

A peaceful, prosperous and competitive Union.

A Union which makes the most of a vibrant and well-functioning internal market.

A Union where well-educated people, top-level knowledge, and the right business climate come together. And produce results which are both inspired and inspiring.

This is not rocket science. The vision I have outlined would, I hope, be shared by most Europeans. They want Europe to provide growth, jobs and a secure and sustainable standard of living. These are in essence the very same objectives pursued by Mario and his colleagues in the last College. Yet the vision of building a really competitive Europe is even more relevant and even more urgent today than ever before.

That is why, under the guidance of President Barroso i, the new European Commission is determined to reinvigorate the Lisbon process launched in 2000. To deliver a partnership for more growth and more jobs. Not as a means in itself. But as a means to an end.

A means to ensure that we can sustain the fabric of our European societies and guarantee social justice for all.

A means to protect the natural environment which is our legacy to generations to come.

A means to promote peace, security and respect for rights within our borders and export these principles to partners throughout the world.

Competition policy has a crucial role to play in this. Competition is the central driver for growth. Europe must be competitive if we are to deliver on fundamental social and environmental objectives.

The case for change to restore competitiveness:

What do I mean by competitiveness? Put simply, it is people and companies providing, at reasonable prices, goods and services which other people, other companies, and other nations want to buy. The testing ground for competitiveness is of course the market. In today's world, that most often means thinking `European' if not `global'.

When we look at the global market place, it is clear that Europe is still lagging behind in growth and productivity:

  economic recovery remains moderate. Growth stood at around 2.5 per cent for EU-25 in 2004, but domestic demand is still catching up.

  budget deficits persist. Last year one third of Member States had deficits exceeding 3 per cent of GDP.

  overall unemployment rates remain too high, and labour productivity rates remain too low.

  the long-term sustainability of public finances remains insecure in the majority of Member States.

The real European structural problem is twofold: declining growth in productivity, and changes in employment and demographics.

At the moment, Europe's GDP per capita is roughly only 70 per cent of its US counterpart. And the productivity gap is growing. Part of the problem is labour productivity. To be blunt, people produce less in one hour in Europe than they produce in that same hour on the other side of the Atlantic. Europe's relatively inferior uptake of information and communication technology does not help here. This is particularly visible in the financial services and retail sectors.

Differences in the use of labour account for the rest of the gap between US and European GDP per capita. Europe desperately needs to get more people between the ages of 18 and 65 into active employment. And we are all familiar with the demographic outlook. An ageing population with higher life expectancy and lower birth rates will put enormous pressure on pensions and healthcare.

It is clear that the Lisbon Strategy devised in 2000 has not delivered the expected cure. The vision of the most competitive knowledge-based economy still seems more pipedream than reality.

There are even voices which question the need for structural economic reform at all. Who argue that there is an alternative. That Europe can get by through `looking after its own'. That we should turn our backs on free competition in global markets and so avoid difficult choices at home. That we can bolster a limited number of key companies so that they have the advantage on the global market.

I do not agree.

When industrial policy turns towards inwards, when protectionism leads to economic isolation, the consequence is diminished growth, stagnation and lost prosperity. I have seen it at first hand. Companies that face strong competition at home are more likely to become successful on a global scale. However, in difficult times, it is sometimes appealing to launch ideas about champions and sectoral initiatives - to sell the dream of guaranteed international success.

We have firmly to resist this temptation. In the design of policy actions, we should be clear that vigorous competition at home represents the best industrial policy. We should be wary of public policies which are attuned to protectionism, staving off change, rather than embracing it. And we must recognise the risk of complacency. We have to adapt now if we are to meet the challenges ahead.

I believe that Europe stands at a crossroads. Either we continue down the path of low growth and insufficient employment. Or we take the difficult decisions needed to sustain growth, social cohesion and our environment for coming generations. Decisions about whether or not to embrace open product and services markets. Decisions about how flexible labour markets should be. Decisions to reform social security, welfare and tax systems. Decisions on incentives to encourage people back into work. Decisions on how managed migration can deliver win-win outcomes for countries of origin and receiving countries alike.

A partnership for growth and jobs

That is why last week the European Commission proposed a Partnership for Growth and Jobs as the core of the renewed Lisbon Strategy. Our aim is to put the urgency and the focus back into Lisbon. To move away from what Wim Kok i rightly called `everything and thus nothing'. To concentrate minds and energies on the core issues that are really central to growth and jobs.

Underlying Europe's blueprint for economic reform must be a sound framework of macroeconomic policies. Pursuing structural reforms without this stable macroeconomic base would be - to put it bluntly - the ultimate folly.

And the imperative of sustainability remains as pertinent as ever. Economic activity cannot be at the cost of the human resources or natural environment it is intended to serve. Customers increasingly insist on high standards of social responsibility and respect for the environment. These can be the very factors which can give producers the competitive edge: look, for example, at the eco-industries that flourish in Europe.

The Commission's paper describes a programme of priority actions which will make the Union a more attractive environment for growth and job creation.

The programme includes actions:

• To extend and deepen the internal market.
• To improve European and national regulation.
• To build better infrastructures and motivate investment in research and development.
• To facilitate innovation and promote the uptake of ICT and the sustainable use of resources.
• To attract more people into employment and modernise social protection systems.
• To improve the adaptability of businesses as well as labour markets.
• To invest more in human capital through better education and skills - to "promote harmony between school and life", as Leopoldo Sabbatini, Bocconi's first Rector and President put it so nicely.

We have made a clear effort to build our proposal around selected and attainable targets. And, in response to Wim Kok's findings, we have proposed a new system of governance. We are convinced that these streamlined delivery mechanisms can deliver.

In addition to an EU action programme, national action plans would take account of the Integrated Guidelines Package. This Package would for the first time bring together the Broad Economic Policy Guidelines and the Employment Guidelines, providing consistent guidance to help Member States transform the Partnership for Growth and Jobs into national policy initiatives.

Every January the Commission would prepare a single Integrated Report covering the progress made. We want to provide a unified, integrated reporting tool for the European Council when it meets every March. A tool which demonstrates that the Lisbon programme is not just endorsed but truly `owned' at the highest political levels.

The contribution of competition policy

I would now like to set out how I see competition policy contributing to this agenda for growth and jobs.

I start from one simple fact. It is markets that generate wealth - and as a result of that, jobs - not governments.

Competition is the essential and necessary ingredient of markets. Market based competition rewards strong firms that offer better goods and services on more attractive terms. And it penalises those which make less efficient choices about how they organise themselves and what they produce.

The internal market has long been regarded as one of the Union's flagship achievements. And rightly so. We have gradually but persistently eliminated regulatory barriers to the free movement of goods and services. We have put in place a set of common rules which allow cross-border trade and ownership.

But however much we have achieved on paper, markets still do not operate to their full potential. Experience on the ground shows that there is no automatic link between the removal of barriers to cross-border trade and the development of truly effective competition. We Europeans urgently need the internal market to deliver more for us. That is where competition policy becomes decisive. Choosing the right competition policy is make or break for competitiveness and growth. Everything I plan to do in the next five years is set in that context.

Competition screening and sectoral inquiries:

I want to get onto the front foot here. To get out there and actively promote good competitive practice in the internal market. It is not enough to hang around waiting to correct anti-competitive behaviour once the damage has already been done. My fundamental goal is to stop such behaviour at source. That means not just enforcing the rules, but changing hearts and minds too.

Most observers agree that the regulatory framework - at both Community and national level - may unnecessarily, and as an unintended by-product, hold back competition in the internal market. Both the framework itself and the way it is enforced in practice must create an environment which not only permits cross-border competition to happen but which actually induces and favours competition, new entry and innovation.

As part of the renewed Lisbon Strategy, and in line with the recommendation in Wim Kok's report, I would like to use some of the new powers Mario put in place. These allow the Commission to conduct investigations in sectors where competition does not appear to be functioning as well as it might.

I am thinking of key markets such as financial services and energy, which have a direct knock-on effect for overall competitiveness.

We will go into these investigations with an open mind and constructive approach. Where we identify obstacles to competition - be it regulation, State aid, private barriers - we will propose solutions, working closely with national administrations, regulatory bodies and competition authorities.

Secondly, I believe that we can also play a greater part in improving the overall quality of legislation, and helping make it more conducive to competition. That is why the Commission's proposal for a renewed Lisbon programme includes a commitment to systematically examine the impact of proposed new EU legislation on competitiveness. The aim is to identify legislative proposals which have an unnecessarily harmful impact on competition and consumers. And as well as building competitiveness testing into European impact assessment, I also intend to encourage Member States to review national regulation that stands in the way of competition.

Effective enforcement of modernised competition law:

The second area in which competition policy can make a real difference to competitiveness and growth is in maintaining the pattern of effective enforcement of competition law. I am determined to enforce the rules fairly and - where necessary - fiercely, to guarantee a level playing field for all.

Mario steered through an inspired reform of the anti-trust regime, creating a whole new basis for tackling private barriers to competition together with the support of a network of 25 national competition authorities.

Europe now has in place a mature merger control system, based on sound economics and the same standards as all major global jurisdictions. Our merger rules embody the principles of proportionality and subsidiarity through an appropriate decentralisation of decision-making to the national competition authorities. These rules are good for Europe, and I will ensure they are enforced.

I am equally committed to taking forward Mario's legacy of tough action against cartels. Cartels represent the worst of competition breaches by robbing businesses and consumers of their fair share of the benefits of efficient markets. Cartelised business suppresses productivity and cancels out the gains that market integration would otherwise bring.

An effective enforcement policy ensures that the spoils of the internal market are not carved up in private by a handful of businesses. It guarantees that each and every undertaking competes on its own merits. And it is only by creating and maintaining a fair competitive environment at home that our businesses will learn to compete effectively abroad.

There is no need for a radical revolution here. Far from it. My aim is to ensure that the rules Mario has put in place are enforced. But I can see two complementary actions which could assist in that task.

First, I would like to look more closely at how we can improve the leniency regime, to put in place a `one-stop-shop' for applications in cartel cases. A guarantee of immunity from fines across Europe would make companies more willing to expose illegal concerted activity.

Secondly, I do think we need to look again how we can further improve the effective enforcement of the competition rules on the ground. The simple fact is that competition authorities alone cannot know all competition problems in every sector of the market.

I therefore plan to present a Green Paper on ways to empower damaged parties - customers and competitors - to bring their cases forward through the court systems.

Private enforcement of the competition rules is also important in providing compensation to parties injured by competition law infringements, acting as an incentive for compliance, and strengthening the decentralisation of the enforcement of the antitrust rules.

State aid reform:

But possibly the most important way in which competition policy can contribute to competitiveness is through the unique tool of state aid control. The Commission's exclusive powers here also bring a specific responsibility to examine how we can improve the system in search of better competitiveness. I am aware that this is an exercise which may not always make the Commission many friends, but that is something I am ready to live with!

I intend to put the Lisbon target of "less and better aid" right at the top of my agenda.

"Less aid" because I do not accept that while most businesses fight hard to survive and succeed, others are granted artificial advantage through public support. In the long run this aid prevents market forces from rewarding the most competitive firms, and overall competitiveness suffers. All of which leaves customers in the uncomfortable position of paying more for lower quality, less innovative products.

"Better aid" because intelligently-targeted support can fill the gaps left by genuine market failures and hence empower more undertakings to become active competitors.

A dash of Tabasco chilli sauce can add spice and kick to a glass of tomato juice. Some people think it makes the drink a little different, bringing out a new depth of flavour. Others - and I am among them - prefer their tomato juice unadulterated. The point is that the right amount of sauce varies from individual to individual. And no-one I know drinks Tabasco sauce neat. State aid is a bit similar: it has to be used appropriately and always with moderation. When those conditions are met, public aid can create positive spin-offs for society as a whole without distorting competition.

Later this spring I plan to present a Communication setting out some concrete ideas for delivering "less aid, better aid" in Europe. I want to use this as an opportunity to launch a wide debate on how we can ensure that future aid is concentrated where it adds greatest value. That means reforming the rules so that in the future the Commission can continue to block those subsidies that hold back essential structural change. At the same time the rules should make it easier for Member States to use public funds for measures which will boost innovation, improve access to risk capital, and promote research and development.

The package will look at updating the research and development state aid guidelines, taking into account the emergence of public private partnerships, as well as the need to encourage dissemination of the results of research and development activities.

I want to clarify the rules for state aid in support of innovation, to allow Member States to provide assistance on a more flexible basis. I am particularly mindful of the urgent need to fill the market gap for adequate risk capital, particularly for the youngest and smallest enterprises.

More generally I want to look again at how to leave more flexibility for smaller amounts of aid, through a revised `de minimis' threshold linked to a block exemption from notification. And I think we could do more to reduce the administrative burden on national, regional and local state aid providers by putting in place a single and simpler framework for aid which is exempted.

I would like to close on what I expect to be the aspect of the state aid reform package which will give rise to most debate. Discussion on the shape of the future guidelines for national regional aid was already launched under Mario and will continue along with the preparation of the Union's financial perspectives for 2007-13.

My view is that a coherent Union cohesion policy means parallelism between the regional support provided by the European budget via the structural funds and the national aid to undertakings we know as regional investment aid. If not, we risk sub-optimal results in terms of both competitiveness and cohesion.

The Community budget operates within clear and fixed overall limits. This obliges us to focus structural funds where they make a real difference. At the same time, I am nervous about any sort of re-nationalisation of cohesion policy. I am not convinced by the arguments of some countries that plead for capping the EU budget at one per cent, yet argue in favour of a weaker discipline in the regional state aid field.

As we pursue this important policy debate, we need to keep firmly in mind the need to maintain the economic and social impact of Europe's cohesion policy. We should also be acutely aware that we have to work in the overall framework of `less aid', better targeted on where it can bring greatest results in terms of European growth and employment.

I remain of the view that regional investment aid to large companies has to be focused on the regions most in need, thus minimising its distortive effects. This will at the same time allow flexibility in other regions to grant aid that contributes to the Lisbon objectives. In this way, I think the new regional aid rules can help guide the Member States to grant public support in the most efficient manner.

Conclusion

Competitiveness is about people making a difference to their lives, and about businesses producing innovative high-quality products and services.

We all want Europe to remain a powerhouse for prosperity based on a healthy concern for the natural environment and respect for everybody's right to social justice. But that means that we cannot be complacent about the changes happening around us in the global economy and business environment. Closing our borders and living in denial is not a solution. Europe has to embrace change, and become a beacon of new ideas and dynamism.

For this to happen, I am convinced that we need to make European competition policy the ally of prosperity. A positive force for sustainable productivity and growth. A tool which can provide new and imaginative ways to eliminate the obstacles that still stand in the way of dynamic competition in the internal market.

The concrete actions I have described represent an ambitious, yet balanced and attainable response to this challenge.

Dear Mario, thank you once again for arranging for this opportunity to speak here in Bocconi. I have very much enjoyed it.

Ladies, and gentlemen, thank you all for your time and for being such an attentive audience.