Signal Berlaymont: : EU competition policy is the biggest threat to the EU

This week, the European Commission launched yet another attack on US big tech. This time it will investigate if Apple violated the EU’s new Digital Markets Act (DMA). This relatively new EU legislation, from November 2022, says leading digital companies like Apple – “gatekeepers”, in its parlance – need to allow other businesses “free of charge, to communicate and promote offers, including under different conditions, to end users”.

What this means is companies can't just showcase their own products in their own shops – like Apple, in its App Store. It's the online equivalent of saying BMW needs to let Mercedes Benz sell clothing in BMW stores' merchandise department. 

Of course, Apple is famously known for working to keep customers in its own ecosystem. It says it thereby guards the ecosystem's security and quality, but doing so also doesn't hurt its own finances.

In fact, Friday, Apple pre-empted the European Commission by announcing it would block the release of Apple Intelligence, iPhone Mirroring, and SharePlay Screen Sharing for EU users. The Digital Markets Act forces it to downgrade the security of its products and services, it argues. In other words, says Apple, the DMA makes Europeans miss out on innovation. This strengthens the case of those saying “America innovates, China replicates, Europe regulates”.

EU competition policy 

The EU’s zeal to keep companies from just showing their own products in their own shops – and imposing billions of euros in fines if they do -- is now enshrined into law with the DMA. However, it was already common practice in the EU’s competition policy. In March, Apple received a €1.8 billion fine from the EU Commission. The Commission said Apple "applied restrictions on app developers preventing them from informing iOS users about alternative and cheaper music subscription services available outside of the app". This followed a complaint from Spotify. Maybe you might think it better for companies to fight for customers' favour in the marketplace, not with regulators--but, well, this is apparently how business is done in Europe in 2024.

The face of the European Commission’s fight against US big tech is Danish EU competition commissioner Margrethe Vestager. When entering office in 2014, she openly argued it is “only natural that competition policy is political”. This is quite a departure from the previously held belief that the European Commission ought to base its judgement on neutral criteria when dishing out massive fines to companies. 

The suspicion the European Commission was going after US big tech for political reasons was strengthened by statements from former US president Donald Trump, who nicknamed Vestager the “tax lady”. This was because of her attempts to make EU member states send big American companies huge retroactive tax bills. It didn’t help her case that she lost a number of lawsuits against these member states, like Ireland. She claimed their “tax rulings” with major US companies – agreements between tax offices and these companies, to give them certainty about their upcoming tax bill – amounted to “illegal state aid”. Vestager argued these rulings were really tailor-made for these companies and not open to competitors. 

In a big win for Apple in 2019, the EU General Court (its court of first instance) ruled the Commission had failed to show Apple enjoyed preferential treatment amounting to illegal state aid. To be fair, in the following years, companies mostly ended up losing court cases on this subject against the European Commission, and having to pay up.

Allowing State aid 

Ultimately, consumers – the ones the EU Commission defends by encouraging competition – end up footing the bill for all of this. So it may make sense for the EU Commission to check if tax rulings are really open to everyone. The problem with the European Commission’s enforcement of state aid is it prefers to focus on grey areas, leaving blatant violations of the EU’s ban on state aid unaddressed. 

During the decade Vestager was in charge, this trend grew worse. She let France nationalise a shipyard in 2017, to prevent an Italian takeover bid. The same year, she allowed Italy to bail out one of its biggest banks, Monte dei Paschi di Siena. That was before Covid. Then, her institution relaxed the rules, letting Germany promise monstrous amounts of state aid, making up more than 30 per cent of its GDP. According to the Commission, in 2021, EU member states “disbursed massive amounts of State aid to mitigate the devastating economic effects of the pandemic”.

In any case, an estimated 91 per cent of state aid is exempted from the Commission's scrutiny. When member states want to spend money on things like social assistance, development, transport infrastructure, natural disaster relief, culture, education, environmental protection, innovation, and digitalisation, they can do so freely and don't need to notify the Commission. Only when subsidies have an industrial character are they obliged to do so. 

And during Covid, a so-called "temporary crisis framework” was adopted, letting countries like Germany spend more. In March 2022, the Commission adopted another such framework, “aimed at providing a crisis response following Russia's aggression against Ukraine and the unprecedented increase in energy prices”. 

Of the €672 billion in subsidies spent last year under this “temporary” crisis framework, Germany accounts for 53 per cent, having spent around 9 per cent of its annual GDP on state aid. France has spent around 6 per cent of its GDP, accounting for 24 per cent, and Italy 3 per cent of its GDP, accounting for 7 per cent of all the subsidies. Germany splashed all this taxpayer cash around to deal with the energy crisis, while it was shutting down perfectly functional nuclear power plants. 

Smaller EU member states warned last February this increased use of subsidies undermines the foundations of the single market. They stated, “state aid for the mass production and commercial activities can lead to significant negative effects including the fragmentation of the internal market, harmful subsidy races and weakening of regional development.”  

This warning was completely ignored, and the arrangement was instead extended. 

None of these countries – Denmark, Finland, Ireland, Poland, Sweden, the Netherlands, Hungary, Latvia, the Czech Republic, Slovakia, and Belgium – are inclined to leave the EU. At some point, though, they may start wondering what the advantage of the EU is. 

The EU's focus is increasingly on regulation that hampers innovation and fiscal transfers, while it abandons its core purpose: to safeguard fair competition between EU member states. In this way, the European Commission’s competition policy is becoming the main threat to the EU project.