Intergovernmentalism in a supranational field: France, Germany, and EU competition policy reform

Abstract

Competition policy is one of the few truly integrated policy fields of the European Union (EU), with supranational actors like the European Commission having extensive competences. Scholars consider it to be a relatively stable policy domain, characterised by strong path dependencies, a solid anchoring in European primary law, and the pre-eminence of epistemic authority. However, in recent years, EU competition policy has undergone remarkable changes including merger control, projects of common European interest, and state aid. This article argues that France and Germany, the EU’s two largest member states with most financial resources, have been decisive in promoting and realising these changes. Competition policy is an unlikely case for Franco-German European-level political work, primarily because of the supranational character of the policy field and the two countries’ oftentimes opposing positions on aspects related to the European single market. Building on policy document analysis and expert interviews, the article shows how and why France and Germany, partly in confrontation and partly in alignment with the Commission, have re-shaped EU competition policy.

Keywords:

• Competition policy
• European Union
• France
• Germany
• intergovernmentalism

‘Europe needs an industrial strategy for the twenty-first century.’ In a joint position paper from February 2019, the Ministers of the Economy of France and Germany at the time, Bruno Le Maire and Peter Altmaier, called for an overhaul of the European Union’s (EU) competition policy. Among other things, they suggested relaxing competition rules because Europe would only succeed if ‘European companies are capable of competing on the global stage’ (BMWi and MEF 2019). The position paper came at a critical moment for European integration: internally, just one month earlier, the European Commission had prohibited the merger of the two countries’ industrial giants, Alstom and Siemens – a merger strongly favoured by the French and German governments. Externally, Europe was increasingly confronted with global-power rivalry, primarily between the United States and China. In another joint statement three years later, facing the repercussions of the Covid-19 pandemic and high energy prices, France and Germany re-iterated their position, calling for European financial support for the companies hit hardest by these two crises (Le Maire and Habeck 2022).

The Franco-German proposals and initiatives stimulated remarkable and, according to scholars, quite significant European-level changes in competition policy (Di Carlo and Schmitz 2023; Meunier and Mickus 2020). In December 2019, the Commissioner responsible for competition, Margrethe Vestager, announced plans to update the relevant market definition used in merger investigations (Vestager 2019). In March 2020, the Commission announced a reform of the EU’s state-aid provisions, indicating that it would revise the eligibility criteria for special state aid (European Commission 2020). Finally, in the period from 2018 to 2023, the EU launched six projects qualifying as ‘Important Projects of Common European Interest’ (IPCEIs). IPCEIs are innovative projects considered to be strategically important for the EU’s competitiveness on the global stage. They are cross-national in the sense that they must at least include four EU member states (European Commission 2021b). While the possibility of launching IPCEIs dates back several decades, the latter had hardly been used before 2018.

Against this background, scholars have noted paradigmatic shifts unfolding in EU competition policy (Schneider 2023a; Warlouzet 2021). Further below, we refer to Peter Hall’s policy paradigms and the notion of ‘second-order’ change to assess the extent of these shifts (Hall 1993). Why has EU competition policy undergone change within a fairly short period of time? How did these changes come about, and why did they take the form they did? Competition policy, after all, is a supranational and, some would argue, rather de-politicised policy field. In an influential contribution from 1994, Giandomenico Majone stated that the delegation of supranational powers to the European Commission, particularly apparent in competition policy following the 1986 Single European Act, marked the rise of the ‘regulatory state’ in Europe that was to replace the interventionist nation states of the past (Majone 1994). Whereas public authorities previously had directed markets to realise politically defined objectives, the Commission, and especially its Directorate General for Competition (DG COMP), would now be far less prone to policy capture on grounds of electoral objectives or economic statecraft.

This article argues that competition policy has become very political and contested again. The EU has moved beyond pure regulatory politics also in this policy field, not least due to member states’ initiatives, concrete action, and programmatic battles, something that we refer to as intergovernmental ‘politicisation at the top’ (Schmidt 2019; Wolff and Ladi 2020). We argue that France and Germany have been decisive for the recent shifts in EU competition policy. As the EU’s two largest member states with most financial resources, France and Germany occupy a key place inside Europe’s single market and the EU’s system of governance. Importantly, however, Franco-German influence goes beyond the joint size of their economies. The two countries usually take different and at times opposite positions on aspects related to competition: while France advocates for protectionist policies and common European fiscal resources, Germany tends to insist on a liberal market order and the priority of national resources (Warlouzet 2019). Yet, once French and German positions converge and the two governments develop joint interests, for instance in the face of external threats or internal European developments considered unfavourable, the two countries can decisively shape European-level decisions. Thus, despite cooperation in this domain going back to the early stages of European integration and predating the ‘post-Maastricht’ period of EU policy making (Bickerton et al. 2015), competition, like other policy fields, has become more intergovernmental in its political significance and manifestation.

Our contribution to the academic literature is threefold. First, we hold that EU competition policy, irrespective of its legal provisions and formal allocation of competences, is a policy field characterised by significant informality and de facto change. In policy fields other than the classical ‘core state powers’ (Genschel and Jachtenfuchs 2014), member states continue to exert great influence and might successfully pressure supranational actors to realise policy reform (Bickerton et al. 2015; Puetter 2012). Second, we show why France and Germany, rather than one country alone or any other (group of) member states, promoted the recent changes in EU competition policy. We do not dispute the key role of the European Commission. In a policy field where it enjoys much competence and (formal) autonomy, the Commission has been indispensable to realise these changes. However, other than competing theoretical accounts like neofunctionalism suggests, it were the two largest EU member states that at important moments provided the necessary political spin and direction. The reforms in competition policy therefore involved less ‘spill-over’ and were less supranationally driven that is often assumed or claimed (cf. Di Carlo and Schmitz 2023). Third, competition policy can be highly controversial. As we theorise and document, there is some underexplored variation in policy preferences not only between member states and the Commission but also among member states, especially between the largest and smaller ones (see also Thatcher 2020).

Competition policy represents an interesting case for changes in EU policy making and for Franco-German relations in particular. It is one of the few truly supranational policy fields, where the European Commission enjoys great discretionary power (Cini and McGowan 2009; Thatcher 2020). For instance, subject to the approval by the Court of Justice of the EU, the Commission can prohibit mergers and ban state subsidies. These supranational competences are anchored in European primary law. Competition policy thus represents an unlikely case for both intergovernmentally driven agenda-setting and policy change. The Commission, and especially DG COMP, are often perceived to act solely on clearly established rules and are thus considered to be independent from member-state influence. However, the interpretation of primary law is an inherently political endeavour. As DG COMP director Olivier Guersent puts it, EU competition policy ‘adapts according to the general political priorities of the EU […]. This is one of the main reasons that competition policy has been placed within the European Commission rather than in an independent agency’ (Guersent 2020). And yet, the (potential) struggle over these priorities and their definition also involves national political elites and can make them move EU competition policy to the realm of public policy. It is precisely this struggle that enables member states, and France and Germany in particular, to wield influence in a supranational policy field. Further below, we draw on the literature on ‘political work’ (Jullien and Smith 2011; Mérand 2022) to explicate national governments initiating policy change, especially when their preferences conflict with those of the Commission.

The next section presents the theoretical framework. It outlines competences and historical developments in EU competition policy, before considering France and Germany’s preferences and positions in this policy field. It further develops expectations about the alignment of Franco-German preferences, relations with the European Commission, and EU competition policy reform. The subsequent empirical sections cover developments and changes in three main areas of EU competition policy, namely IPCEIs, state subsidies, and merger control. The cases we study display tensions between supranational and intergovernmental actors. Moreover, they primarily target state action rather than private-actor behaviour. Our analysis extends from 2016 to 2023. The year 2016 marks the starting point of severe European challenges due to internal and external events, notably Brexit, the arrival of the protectionist Trump administration in the US, and the ‘Kuka shock’, that is, the takeover of the German robotics manufacturer Kuka by a Chinese conglomerate (cf. Meunier and Mickus 2020). The conclusions summarise the main empirical findings and their broader theoretical implications. They also give a tentative outlook, pointing at current political controversies and suggesting avenues for further research.

This article offers case-study research in combination with the careful tracing of important events and developments (Beach and Pedersen 2019; Gerring 2017). This means that we theorise relevant actor constellations and possible outcomes in terms of policy change, before putting these expectations to the test with the empirical record. Each case study is primarily concerned with the most relevant reforms in EU competition policy and how and why they came about. To do so, we build on a large set of primary sources including European policy documents, Franco-German initiatives, and national policy papers. Moreover, between early 2020 and early 2023, we altogether conducted 29 in-depth interviews with policymakers and civil servants from the European Commission, the Council of the EU, France, Germany, and five other EU member states. To obtain relevant information, the interviewees were guaranteed anonymity, which in some cases means that we leave their country of origin undisclosed. We triangulate these primary sources with relevant academic literature and press reports.

EU competition policy: between supranational competences, intergovernmental interests, and occasional change

A supranational policy field in a state of flux

EU competition policy is at the heart of European and national economic and industrial policy making. Setting and enforcing a regulatory framework, it seeks to secure the effective functioning of market economies and fair conditions inside the European single market. It includes antitrust measures, such as monopoly and cartel control, merger policy, and state aid. EU competition policy is one of the most supranational EU policy fields, putting the European Commission into a strong institutional position (Büthe 2007; Thatcher 2020). It is also one of the oldest EU policy fields. The first competition regime concerned the European Coal and Steel Community from 1952. Subsequently, competition policy was anchored in the Treaty of Rome, which in 1958 established the European Economic Community (EEC), the forerunner of today’s EU (Büthe 2007). That said, the strict implementation of competition policy had been impeded for several decades by the existence of interventionist industrial policies at the national level (Warlouzet 2017, 2019).

This intellectual climate changed in the 1980s when European integration found new momentum through a ‘market-creating’ agenda pushed by the European Commission under its President Jacques Delors (Jabko 2006). From then on, the fundamental belief underlying competition policy was that economies should operate on the basis of free-market principles. Competition policy was to guarantee market activities to stimulate economic entrepreneurship and innovation and to prevent anti-competitive measures (Cini and McGowan 2009: 3). Moreover, most policymakers and academics held that supranational expertise should replace intergovernmental politics. Prior wariness towards ‘market failure’ were increasingly replaced by measures to prevent ‘government failure’ (Majone 1997: 142). Competition policy became the prime example of supranational governance, as it exhibited both moderate levels of politicisation, or possibilities of a de-politicisation, and a high degree of technical complexity enabling epistemic authority (Niemann 2021: 130; see also Stone Sweet and Sandholtz 1997). Thanks to their expertise, the Commission, and especially DG COMP, were perceived to act on clearly established rules and thus to be independent from member-state influence. According to Majone (1999: 8–9), as a supranational, non-majoritarian institution, the Commission was intended to ‘protect the rights and interests [as defined by the European Treaties] of the citizens of the Union, even against the majoritarian decisions of a member state or against the preferences of a majority of the member states’.

While the global conjecture since the 1980s had enabled depoliticisation and epistemic rule, this method of policy making has recently been subject to contestation on the grounds of a more active industrial policy (Bulfone 2023). It has led policymakers, both at national and European levels, to embrace politicisation in order to legitimise their own actions, as opposed to previous decades of regulatory policy making. Competition policy, these policymakers hold, can and should promote particular activities and interests considered important. Drawing from existing literature (Wolff and Ladi 2020), we refer to this feature as ‘politicisation at the top’, suggesting the intensification and polarisation of debates. As Schmidt (2019: 1024) notes, when happening at the top, politicisation does not only mean an issue entering public debate, but it also involves ‘deeper intensity of interactions among EU actors in political struggles’. In the EU context, for example, some services might be of a more general economic and public interest than others (Blauberger 2009). Moreover, in recent years, concerns about the international competitiveness of national industries have gained traction. These debates are increasingly framed in terms of European competitiveness, thus potentially transferring state aid from the national to the EU level (McNamara 2023). In all these instances, competition policy might consciously tame free-market forces or direct market activities in order to fulfil political purposes.

Created primarily as a reactive instrument, seeking to prevent anti-competitive measures, EU competition policy today is (again) taking a different direction. One finds interesting parallels to the 1970s. Back then, following the two oil price shocks, the EEC, and European industries in particular, faced stark economic recessions including record-high numbers of inflation and unemployment. As a consequence, DG COMP, pressured by national governments, tolerated temporary crisis cartels and national state-aid programs (Warlouzet 2017). The different understandings of what competition policy is, or is supposed to be, indicate that there is not a single, agreed, and shared set of competition policy objectives. Instead, the supposedly best way to organise and enforce competition policy is subject to frequent (re-) interpretation and represents a paradigmatic battle involving political and economic interests. As Cini and McGowan (2009: 162) note, state aid is a particularly sensitive and at times controversial part of EU competition policy. This is not only because state aid involves national governments rather than firms. In addition, restricting governments’ capacity to intervene in their own economies, EU state aid policy might hinder national industrial strategies and objectives.

Especially in times of crisis, usually combining economic stress tests with political uncertainty, competition policy tends to become politicised and move to the centre of political debates (Wigger and Buch-Hansen 2014). Reflecting different economic ideas and interests, actors call for EU competition policy to become more activist (Bulfone 2023). Indeed, as the examples from above suggest, EU competition policy in the past few years has seen major reforms. There is no scholarly consensus yet on the emergence, let alone nature, of a new policy paradigm. For instance, Di Carlo and Schmitz refer to a ‘developmental network state’, which in a horizontal manner coordinates private and national initiatives towards a European industrial policy (Di Carlo and Schmitz 2023: 2068–9). Lepont and Thiemann, on the other hand, suggest a ‘European investor state’, which facilitates private investment for public-oriented priorities (Lepont and Thiemann 2024).

While we do not have a definite answer on the new paradigm either, our main research interest concerns how change became possible and why the reforms took the form they did. We consider the various reforms – to be covered in greater detail below – as instances of ‘second-order’ change (Hall 1993). Following this notion, the underlying goals behind EU competition policy remain to secure and foster European economic competitiveness. However, its instruments have changed markedly: while competition policy previously concerned dismantling national industrial policies and creating competition within the EU’s single market, its new toolkit includes more active industrial policy initiatives and a growing focus on the European level. With respect to competition policy, the EU is therefore moving beyond the regulatory state.

We hold that the positions held by France and Germany, the EU’s two largest economies, are of particular relevance here. Representing a critical mass, France and Germany alone in the aftermath of Brexit account for almost 40% of the EU’s overall economic output, suggesting strong European-level implications of any bilateral decision or action involving large amounts of money. In addition, France and Germany regularly take different and at times opposing positions on aspects related to the single market (Warlouzet 2019). While this constellation can hinder a Franco-German alignment, the prospects for bilateral compromises and European-level policy change significantly increase once France and Germany have found common ground.

An unlikely case for Franco-German influence

At first sight, competition policy is an unlikely case for Franco-German bilateralism. One reason is that, compared to other European policy fields, such as monetary integration, the Common Agricultural Policy or enlargement, France and Germany have traditionally exercised only a modest influence in competition policy (Krotz and Schild 2013: 158–82). Another reason is that French and German economic ideas are said to diverge. French economic ideas reflect some relationship to the concept of ‘dirigisme’, stipulating an active and interventionist state that has at its disposal strong tools to steer the economy (Ansaloni and Smith 2018; Bora 2023). By contrast, many scholars argue that German economic ideas reflect principles of ‘ordoliberalism’ and the notion of independent public authorities acting as neutral referees and seeking to avoid the excessive accumulation of economic power (Bonefeld 2012).

Against this background, our article makes the following arguments. First, the traditionally limited European-level influence exercised by France-Germany in EU competition policy is partly due to the supranational character of this policy field. It gives the European Commission not only the exclusive right for legislative initiative but also strong powers to enforce decisions related to competition. More importantly, however, were the different and at times divergent preferences and positions held by the EU’s two largest member states. In turn, once their preferences and priorities tend to converge, as they do now (Bora and Schramm 2023; Germann 2023; Schneider 2023a, 2023b), France and Germany are likely to exercise considerable impact on the European level.

Second, despite the strong differences between dirigisme and ordoliberalism, we consider that the political reality and practice often deviate from pure economic doctrine. Scholars have shown that neither dirigisme nor ordoliberalism were ever implemented in pure form on the European level. For example, Warlouzet (2019) considers the EU competition policy regime as an evolving compromise between French and German economic ideas and interests. Moreover, while many provisions in the original set-up of the EEC’s competition policy reflected ordoliberal principles, there were important exceptions (Canihac 2021). Most notably, other than the German competition watchdog, the European Commission from the beginning was a political institution, rather than a mere administrative body. This not only means that there was a strong supranational player, but it also foreshadowed political conflicts between the Commission and member states.

As Büthe (2007) notes, dynamics and changes in European competition policy relate to the economic context, the constellation of relevant actors, and their specific interests. Historically, interventionist approaches and practices dominated in times of economic crises, that is, periods considered to threaten a country’s economic model and the international competitiveness of its key commercial and producer groups (Moravcsik 1998). As noted above, the global recessions during the 1970s saw the relaxation and non-application of European-level competition rules (Warlouzet 2017). Interventionist policies were more limited in the context of the global financial and subsequent Eurozone crisis of the early 2010s, precisely because powerful political actors like the German government and the Commission questioned the necessity and usefulness of such measures (Wigger and Buch-Hansen 2014).

With respect to France and Germany and the recent developments in EU competition policy, we argue that the two countries promoted change in this policy field because they considered the status quo to have become disadvantageous and thus untenable. This is due to the strong and fairly abrupt shifts in the international economic and political environment putting the competitiveness of their industries at risk (Germann 2023; McNamara 2023; Meunier and Mickus 2020). To be sure, differences in preferences and approaches towards competition policy compared to the ones witnessed in the past are more distinct in the case of Germany than they are for France (Bora and Schramm 2023). While French governments have persistently argued for a relaxation of competition rules and a more activist European industrial policy, German governments used to be more reserved. Recently, however, in the face of a more uncertain international environment experiencing the repeated interruption of economic supply chains and putting the German industrial model at risk, German policymakers altered course.

The 2016 takeover of robotics manufacturer Kuka by a Chinese conglomerate marked the starting point for German policymakers to reconsider their approaches to national industrial policy and the European competition regime (Di Carlo and Schmitz 2023: 2076–8). Concerns spread about national industrial ‘lateness’ in high-end technologies and previous foreign-sales markets, notably in China, which were increasingly replacing German exports by domestic products (Schneider 2023a, 2023b). The decisive turn then became visible through the successive publication of the ‘Germany 2030 Industrial Strategy’ and the ‘Franco-German manifesto for industrial policy’ in the first half of February 2019, immediately following the Commission’s refusal to approve the Alstom-Siemens merger. As Germann (2023: 1766) notes, the two successive papers marked ‘the first time in decades that German officials openly contemplated a significantly augmented role for the state in promoting and protecting its industrial base, technological lead, and economic independence’.

Despite these major shifts inside Germany, we consider the role of Germany and France crucial to explain recent changes in EU competition policy. As economic data suggest and as policymakers from the two countries explain, acting together, they are more likely to promote and realise European-level reforms. Under the circumstances outlined above, French and German government officials reached a ‘historical compromise to help combat China’s economic policy’ (Interview 11) and sought to overhaul EU competition policy. To explain bilateral advances, we draw on the concept of ‘political work’, defined as a collection of ‘strategic and emotional practices’ which aim to leverage politicisation in the pursuit of policy objectives (Mérand 2022: 847, see also Jullien and Smith 2011). Political work enables actors to initiate, promote, and legitimise policy change. We hold that this includes a supranational policy field, like EU competition policy, if member-state preferences clash with those of the Commission. Thus, whereas Mérand (2022: 848) focuses on supranational actors and insists on the Commission’s use of political work to carve out a space for agency amidst ‘institutional rules and intergovernmental power structures’, we emphasise the manoeuvring of national governments in an environment dominated by the epistemic authority of the Commission and DG COMP in particular. Facing a technocratic policy-making culture driven by EU treaty law and economic modelling (Gerbrandy 2019), the governments of France and Germany promoted political arguments about the survival of European industry and supply-chain independence.

A typology of intergovernmental political work

As the EU’s two largest member states, France and Germany claim to act on the strategic interests and sovereignty of Europe (Schramm and Krotz 2024). The Commission, in turn, derives authority from its expertise and status as the guardian of the European treaties. Importantly, in a context of serious international challenges, the Commission might have little interest in a stark and lasting conflict with national governments, knowing that ultimately such a situation could lead to reputation costs for all parties involved. Already more than 30 years ago, Warnecke (1978: 170) explained that ‘the Commission is not always politically in a position to act in those areas in which it has the legal right’ (as cited in Cini and McGowan 2009: 191). This especially applies in the event of internal divides. Within the Commission bureaucracy itself, President Ursula von der Leyen and the more interventionist DG for the Internal Market (DG GROW), under the purview of the French Commissioner Thierry Breton, committed to ensure the ‘economic sovereignty’ of Europe (Von der Leyen 2019), even if this came at the cost of jeopardising the independence of administrative authorities inside DG COMP.

Our approach to developments and shifts in EU competition policy thus corresponds with other strands of academic research. Like the new intergovernmentalism (Bickerton et al. 2015; Puetter 2012), we highlight the reservations of national governments to delegate ultimate decision-making power to the EU level. We also acknowledge that the preferences held by supranational and intergovernmental actors can point in the same policy direction and/or that the Commission might shy away from an open confrontation with national governments. Our arguments, however, go further. First, since competition policy is a well-integrated policy field, member-state reservations not only relate to the transfer of new competences but also include the intergovernmental encroachment on the exercise of existing supranational competencies. We therefore consciously address a policy field outside the classical ‘core state powers’ (Genschel and Jachtenfuchs 2014), which comprise fiscal, defense, and internal-security policy and where national sovereignty concerns are traditionally well pronounced. We show that while predating the period after the entry into force of the Maastricht Treaty in 1993 – the time for which new intergovernmentalism claims superior explanatory power over other theories (Bickerton et al. 2015) – cooperation in competition policy today exhibits political dynamics typical for this period. This notably concerns the reluctance on the part of intergovernmental actors to grant policy authority to supranational bodies.

Second, different from claims about a supposed consensual decision-making culture involving policy coordination among all member states, our focus lies on France-Germany. To be sure, new intergovernmentalism acknowledges power dynamics and the possibility of hard bargaining (Puetter 2016). However, we explicitly highlight the role of a small group of actors in the interpretation of policies and the creation or application of the ‘right’ policy instruments (see also Schimmelfennig 2015: 728). Third, we expect to find more conflict in the relationship between the Commission and (large) member states than the new intergovernmentalism would suggest. It is indeed the variation in the preferences and approaches held by these different actors, and how they play out in terms of policy and/or institutional outcomes, that is most relevant for empirical scrutiny.

Through three case studies on recent changes in EU competition policy, we develop a typology of different types of intergovernmental political work. Our typology rests, first, on the ‘supranationality’ of the respective policy instrument. The question here is whether or not a supranational (legal) instrument is available beforehand to address a given policy challenge. Second, the typology reflects the relation between supranational actors (notably the Commission) and the member states (in the form of national governments). While one can expect conflicting preferences between supranational and intergovernmental actors on aspects related to the single market, the Commission for strategic purposes at times might also side with national governments (Peterson 2015). Hence, we stipulate that the types of political work depend on a) whether there are existing legal instruments available to member states to pursue their policy objectives and b) the extent of divergence between member-state and Commission preferences. In the empirical sections further below, we document how the interplay of these factors suggests specific types of intergovernmental political work.

First, re-interpretation applies to situations where there are no legal instruments that can fulfil member states’ objectives and where the divergence between member-state and Commission preferences is moderate. Given that the interpretation of primary and secondary EU law is not fixed in time (Vauchez 2015), it may be possible for member states to create a new legal basis using opportunities provided for by EU law. This way, legal frameworks are altered or newly created without the Commission having to take legislative initiative. At the same time, the divergence in preferences must be moderate because the Commission still needs to recognise the validity of such a new legal basis. The Important Projects of Common European Interest clause on state aid and its subsequent development, which was proposed by France and Germany and subsequently featured in a 2014 Commission communication, is such a case of re-interpretation. The Commission initially conceded to the creation of the IPCEI concept assuming that it would have a narrow scope of application. Once the concept became part of EU law and political practice, however, France and Germany used the IPCEI clause to provide state aid for an ever-increasing range of economic sectors.

Second, foot-in-the-door tactics apply to situations where there are legal instruments that could potentially be used by member states, while divergence between member-state and Commission preferences is intense. In these cases, member states do not attempt to coin a new legal concept but seek to broaden the range or extend the timeframe of an existing arrangement. In order to do so, they will seek the Commission to make a number of initially small concessions before, subsequently, escalating their demands. The temporary state aid framework, first agreed in the middle of the Covid-19 pandemic, is a case of foot-in-the-door tactics. The Commission intended this framework to be a time-limited instrument, similar to pro­visions agreed during the 2008 financial crisis. France and Germany, however, repeatedly succeeded in extending this instrument. Despite the vocal opposition raised by several Commissioners including Vestager (cf. Dombrovskis and Vestager 2023), France and Germany obtained its replacement with the March 2023 temporary state aid and transition framework including a ‘matching state aid clause’ (European Commission 2023a).

Finally, revisionism occurs in situations where there are no legal instruments that could be used by member states to pursue policy objectives, while the divergence between member-state and Commission preferences is intense. In these cases, member states might threaten to change the distribution of competencies between national governments and the EU’s supranational bodies in order to obtain concessions from the Commission. France and Germany resorted to this option in February 2019, following the Commission’s refusal of the Alstom-Siemens merger. Explicitly confronting the Commission, the French and German governments obtained an update of the merger control guidelines and the Commission’s 1997 market-definition notice (European Commission 1997), which now considers not only competition within Europe but also European companies’ global market shares.

IPCEI clause on state aid

The Important Projects of Common European Interest (IPCEI) clause is a legal instrument through which governments can obtain a derogation from the European Commission on state aid rules on a project-by-project basis. While the term IPCEI first found its legal basis in article 107.3 of the Maastricht Treaty, briefly mentioning ‘important projects of common European interest’, the specific notion even dates back to the Treaty of Rome from 1958. That said, this legal basis for a long time remained latent, as the criteria for IPCEIs were only formalised in 2014 (European Commission 2014). This was due to the Commission’s concerns about overcoming non-tariff barriers to intra-European trade and thus to preserve the integrity of the EU’s single market.

Throughout the 1980s, the Commission had aggressively challenged national sectoral aid policies (Wigger and Buch-Hansen 2010: 35). Its famous 1985 White Paper on completing the internal market stated that ‘any action taken to ensure the free movement of factors of production must necessarily be accompanied by increased surveillance by the Commission in the field of competition rules […]. In particular a strong and coherent competition policy must ensure that the partitioning of the internal market is not permitted to occur as a result of protectionism, state aids or restrictive practices by firms’ (European Commission 1985: 8). Whereas regional aid was tolerable, member states’ aid to specific economic sectors was seen as outright protectionist and thus an obstacle to the single market (Interview 25).

While successive French governments had sought to reform EU controls on sectoral state aid, Germany for a long time had shown little support for these efforts. This is because industrial policy in Germany tends to rely on ‘horizontal’ and neutral, rather than ‘vertical’ and sector-specific forms of cooperation (Streeck 2009: 77–8), the former of which was covered and tolerated to a far greater extent by EU rules. Against this background, Germany’s preferences changed during the 2010s, especially in sectors vulnerable to China’s move into high-technology manufacturing (Schneider 2023a). As of the mid-2010s, successive German governments were confronted with pressures from key producer groups and, along with France, sought revising EU state-aid rules.

The re-interpretation strategy pursued by France and Germany unfolded in two steps, namely, forging a new legal notion from the existing treaty basis before gradually extending its scope. First, regarding the legal notion, the Commission already in 2014 had issued a Communication clarifying the IPCEI clause of the Maastricht Treaty (TEU, art.107.3), as part of a broader State Aid Modernisation program (European Commission 2014). As a senior official from the French ministry of the economy reports, this Communication had been a response to a Franco-German request: ‘we created this notion [of IPCEIs] alongside Germany […]. We pushed, starting from 2012–2013, on the basis of a very concrete need expressed by microelectronics corporations’ (Interview 4). During the following years, the French and German governments engaged in intergovernmental political work, effectively seeking to justify IPCEIs on an ever-greater number of economic sectors considered vital for ‘European technological sovereignty’ (BMWi and MEF 2019). Disagreement with the Commission, as well as a majority of other member states, was less on whether IPCEIs were necessary, but rather on the number of sectors with a supposed ‘market failure’. A related key point of contention was that IPCEIs, in contrast to other potential EU-level instruments, allowed large member states, and France and Germany in particular, to pursue joint projects without having to include smaller member states with less financial means.

Moving to the second step, the extension of scope, Germany and especially France wanted to expand the IPCEI instrument to a ‘much larger number of supply chains’ (Le Maire 2020). In view of perceived threats to the integrity of the single market, both the Commission and several smaller member states continued to advocate for the ‘selective’ use of the IPCEI instrument (Czech Republic et al. 2021). As one official from a Northern member state reported: ‘Everyone recognised that some sectors are strategic but you cannot call everything strategic’ (Interview 24). Another official similarly commented that ‘the simple fact that Europe does not have a big world market share is not a market failure for us’ (Interview 23). Even member states with legacies of strong state intervention, notably in Southern Europe, were reserved about the expansion of IPCEIs because of their inability to match France and Germany’s levels of spending (Interviews 26, 28).

Reflecting the moderate divergence of preferences on the legal notion itself between France-Germany, on the one hand, and the Commission, on the other, DG COMP officials accepted the idea that there could be market failures in ‘very exceptional cases’. Nevertheless, their acceptance for IPCEIs was half-hearted, as ideas like European technological sovereignty were assimilated to a ‘Soviet-style command economy’ (Interview 8). Thus, even in instances where the Commission’s diagnosis of a market failure converged with the one of France and Germany, differences regarding the preferred solutions remained. Most Commission officials considered IPCEIs, due to their intergovernmental setup and implications, to constitute a suboptimal instrument when compared to the build-up of common fiscal resources, possibly in the form of a ‘European sovereignty fund’ (cf. Di Carlo and Schmitz 2023: 2087).

By the spring of 2023, however, EU competition policy had markedly changed, and the scope of IPCEIs expanded into an ever-broadening range of sectors. While no IPCEI came into being in the first 26 years of the existence of article 107.3, the Commission approved six IPCEIs in the period between 2017 and 2023. In total, close to €28 billion of government funding were allocated to three different industries in less than four years, while a further €51 billion of private investment can be expected (European Commission 2024). Due to Franco-German political work and pressure, IPCEIs thus moved from a previously obscure sub-article of the Maastricht Treaty into a full-fledged concept of EU law and political practice.

While some of these projects were driven by the private sector, others were ‘the result of a political idea with Macron, Merkel and Von der Leyen sitting down and deciding to do something’ (Interview 18). Having had reservations about the use of IPCEIs, DG COMP only approved member states’ requests at a slow pace (Interviews 4, 14). However, benefiting from France’s President Macron’s ‘political and intellectual proximity’ (Interview 29) to European Council President Charles Michel, whose cabinet is tasked with producing first drafts of conclusions which are then negotiated and endorsed by national governments, France and Germany on multiple occasions used European Council conclusions to put additional pressure on the Commission. For example, the October 2020 conclusions ‘invite the Commission to help the Member States develop new Important Projects of Common European Interest’ (European Council 2020: 3).

Given that the vast majority of IPCEI state aid was used by France and Germany (see below), several smaller member states complained about their market-distorting consequences. A letter from April 2021, co-signed by the Czech Republic, Denmark, Finland, Ireland, Latvia, Lithuania, Poland, the Netherlands, Slovakia, Spain, and Sweden, remarked that ‘not all Member States have the same financial or human resources to participate in an IPCEI’, which led to an ‘unlevel playing field’ (Czech Republic et al. 2021). We thus see political clashes not only between intergovernmental and supranational actors but also among member states, and between France-Germany and smaller member states in particular.

It seems very unlikely that the Commission would have extended the scope of IPCEIs so significantly and in such a short time without the intergovernmental pressure, as primarily exercised by France-Germany. With IPCEIs continuing to be implemented, a Commission Communication from December 2021 has increased the number of required participants to four member states (European Commission 2021b). Thus, as an expression of second-order change, EU competition policy stills serves the underlying goal of avoiding market fragmentation. At the same time, it now channels industrial policy initiatives towards the European level, rather than rejecting them outright. While the Commission from the start was open to the re-interpretation of EU law to support European industrial activities, for the reasons mentioned above it had reservations towards intergovernmentally oriented IPCEIs. However, for the time being, Commission proposals to create a European sovereignty fund in order to finance IPCEIs through EU-level financial resources have not met sufficient support from the member states (Financial Times 2023).

Temporary state aid frameworks

Temporary state aid frameworks refer to the exceptional and time-limited suspension of state-aid rules. They were notably applied during the 2008 financial crisis, only to be swiftly suspended afterwards (Wigger and Buch-Hansen 2014). Fast forward 15 years, temporary state aid frameworks present a preference constellation similar to IPCEI clauses on state aid but with greater intensity and divergence of Commission preferences, with high-ranking Commission officials publicly opposing French and German policy positions. Whereas the French and German governments wanted to provide a competitive edge to ‘European companies’ (Warlouzet 2017: 132), the Commission sought to avoid a bias inside the single market in favour of large member states. Thus, whereas disagreement on IPCEIs concerned the sectoral range of state aid, it was the duration that mattered in the case of temporary state aid frameworks.

Derogations on state aid restrictions had been quickly terminated after the 2008 financial crisis, not only due to the Commission’s concerns about the integrity of the single market but also because Germany sought enforcing fiscal constraints on EU member states (Interview 26). While successive French governments wanted to render the temporary state aid derogations permanent (e.g. Clift 2013), the German government did not show much interest in a measure that could jeopardise fiscal discipline. The Covid-19 pandemic, however, saw a much greater convergence between French and German positions. In stark contrast to the aftermath of the 2008 financial crisis, where the massive fiscal stimuli in the US and China allowed Germany to sustain export-led growth (Schneider 2023b: 7), global trade essentially came to a halt in March 2020. Facing a vastly different situation, German officials introduced exceptional state-aid measures.

Already on 13 March 2020, Germany’s finance minister at the time, Olaf Scholz, stated that the government would do ‘whatever it takes’ and that there would be ‘no upper limit’ on the loans to be issued (Financial Times 2020). In this context, the Commission announced that member states could act with ‘the full flexibility of state aid rules’ and, on 19 March, introduced the State Aid Temporary Covid-19 Framework (European Commission 2020). Instead of outright confrontation, France and Germany’s political work consisted in foot-in-the-door tactics, starting with modest requests before escalating gradually. While the Commission only conceded to temporary instruments for exceptional times, France and Germany persistently pressured for renewals on the grounds of supposedly new crisis situations, rendering them de facto permanent instruments. Representing another case of significant, de facto (although not de jure) change, the initial temporary framework established in March 2020 was extended six times, well into the summer of 2022.

Against the background of the EU’s economic sanctions imposed against Russia following the latter’s invasion of Ukraine in February 2022, the Commission once again introduced a Temporary Crisis Framework to tackle the disruption of economic supply chains. This temporary framework was part of the REPowerEU plan to phase out Russian fossil fuels, announced on 8 March 2022 (European Commission 2022). While the intention of the Commission, and particular DG COMP, was to gradually terminate these measures, the French and German governments sought to transform them into longer-term instruments. Moreover, in November 2022, the two ministers of the economy, Le Maire and Habeck, made a statement about ‘exploring industrial policy possibilities to prevent downside effects of protectionist measures by third countries’ (Le Maire and Habeck 2022). They were specifically targeting the Inflation Reduction Act (IRA) in the United States, which unlocked almost a trillion dollar to finance US climate-change transition technologies in sectors that are critical also for European industrial interests.

The French and German governments and the Commission strongly diverged on the right response. Although competition Commissioner Vestager, in January 2023, expressed her support for transforming the Temporary Crisis Framework into a Temporary Crisis and Transition Framework, she warned against ‘the risk for the integrity of Europe’ (Euractiv 2023a). This was against the background that Germany and France together accounted for almost 80% of the EU’s overall approved state aid (ibid.), a number that had further increased since 2021. Characterising state aid as a ‘transfer of money from taxpayers to shareholders’, Vestager underlined that she uttered the word ‘temporary’ fourteen times in the speech to insist on its limited duration (Vestager 2023).

Along with the Commissioner responsible for trade, Valdis Dombrovskis, Vestager shortly afterwards re-iterated that the EU could not afford to engage in a ‘tit-for-tat’ with the US and instead called for a negotiated solution (Dombrovskis and Vestager 2023). Several Northern and Eastern member states sided with this interpretation because they envisioned that a ‘European IRA will benefit them little compared to larger European states’ (Interview 27). We thus again find intense divergence in terms of preferences and approaches not only between supranational and intergovernmental actors but also between France-Germany and smaller member states.

Seeking to maintain the initiative and pre-empting the Commission, Le Maire and Habeck, on 7–8 February 2023, conducted a joint visit to the respective US authorities in Washington. From this visit, Le Maire immediately drew the conclusion that ‘[we] see the absolute necessity for Europe to arrive at the definition and implementation of a European green tech plan’ (as cited in Politico 2023b). Once again, France and Germany found an ally in European Council President Michel, who provided public support (Michel 2023) and successfully placed considerations about ‘European strategic sovereignty’ into the European Council conclusions (Interview 29). As such, the 9 February conclusions establish that procedures in state aid policy ‘need to be made simpler, faster and more predictable, and allow for targeted, temporary and proportionate support to be deployed speedily, including via tax credits, in those sectors that are strategic for the green transition and are adversely impacted by foreign subsidies or high energy prices’ (European Council 2023: 6).

Important for Franco-German policy objectives, the Temporary Crisis and Transition framework from 17 March 2023 contains a ‘matching clause’ for state aid allowing member states to provide state aid ‘equivalent to an alternative destination’ in cases ‘where there is a real risk of investments being diverted away from Europe’ (European Commission 2023a). This matching clause implies that France and Germany now have the legal discretion to counter the state aid provided in the US through the IRA. Given uneven financial resources, the clause will be of less benefit for smaller member states. Moreover, paving the way for the ‘tit-for-tat’ that it had sought to avoid, the matching clause significantly diverges from the Commission’s initial preferences. The change brought about in competition policy in the form of loser state-aid provisions even led some other large member states, such as Italy and Spain, to warn of competitive advantages for France and Germany and distorting effects inside the single market (Euractiv 2023b).

Merger control guidelines

Merger control refers to the monitoring of corporate takeovers to prevent the concentration of market power. The European Commission obtained competencies over merger controls in the late 1980s, during British competition Commissioner Leon Brittan’s term. In adherence to market-oriented doctrines, Brittan had the self-proclaimed objective of dismantling member-state governments’ support for ‘national champions’ (Warlouzet 2021: 254). Predictably, France’s institutional legacy of dirigisme was at odds with this new domain of supranational governance.

The grounds on which French policymakers criticised the Commission’s use of merger controls throughout the years was that their assessment of the ‘relevant market’ did not take into account global competition (French Senate 2007: 313–5). Germany, on the other hand, showed greater ambivalence on this issue. Whereas the official position of the government had historically been that, in line with ordoliberal doctrine (Schneider 2023a), mergers should be largely restricted, some policymakers in Germany nonetheless sought to politically sponsor mergers (Warlouzet 2021: 254).

The specific case of Alstom-Siemens brought German and French governments’ positions much closer to one another. France, and to a lesser extent Germany, advocated for European champions on the grounds that securing market shares for large European corporations will provide ‘strategic autonomy’ (BMWi and MEF 2019). The Commission, however, was and remains sceptical, once again suggesting strong divergence in its preferences compared to the ones held by France-Germany. As one DG COMP official put it, ‘sacrificing competition for economies of scale is a fool’s bargain because private companies do not necessarily care about strategic autonomy’ (Interview 17). Tensions crystallised when the Commission stopped the Alstom-Siemens merger in February 2019.

Throughout the 2010s, France and Germany had been negotiating to conduct a merger between the two train manufacturers, which would have been one of the most consequential mergers in the history of European industrial and competition policy. The key motivating factor was competition from the Chinese state-owned company CRRC, which itself had been created through the merger of two formerly competing companies. Germany’s Minister of the Economy at the time, Altmaier, was ‘personally invested’ in the project, although officials within the German government and the German permanent representation in Brussels were more sceptical about the creation of European champions (Interviews 11, 23).

Moreover, the Alstom-Siemens deal turned out to be divisive among EU member states. In a letter to competition Commissioner Vestager dated December 2018, competition authorities in Spain, Belgium, and the Netherlands had joined their UK counterparts arguing against the merger on the grounds that it would create a monopoly on numerous segments of the single market (Coscelli et al. 2018). The Commission’s eventual refusal in February 2019 to approve the Alstom-Siemens merger was the tipping point finally securing the German government’s adhesion to France’s long-standing preferences for reforming EU competition policy also with respect to merger control. As one official from the French ministry of the economy recalls, ‘the refusal of Alstom-Siemens was decisive in tipping over the Germans. 100 guys in Brussels read their economics textbook and told them: “no”’ (Interview 3). It is from this point that the German government joined French efforts to reform EU competition policy, including merger control guidelines, on grounds of ‘technological sovereignty’. Reflecting attempts at revisionism, the Franco-German manifesto for a new industrial policy from February 2019 even proposed to instate a European Council’s ‘right of appeal’ on Commission merger decisions (BMWi and MEF 2019).

While it would have represented an unprecedented alteration of EU competition policy, from the beginning the threat to instate a Council right of appeal probably was not considered a serious proposal. As a report commissioned by the French ministry of the economy acknowledges, curtailing Commission competencies requires a change of the European treaties and as such seems politically unrealistic for the time being (IGF 2019). Rather, the aim of this advance was to instate a ‘balance of power’ and make the Commission align its interpretation of EU primary law more closely with French and German preferences. Reflecting politicisation at the top, and in opposition to perspectives stressing broad deliberation and consensual decision-making, one French official explained: ‘Not everything can be done by consensus, these are old ways of thinking. The new method is to take the debate to the European level. It is not a forum of diplomatic or technical discussion, it is about politics. Politics is disagreement, confrontation, and balance of power’ (Interview 1). France and Germany thus engaged in revisionist intergovernmental political work against the Commission, and particularly against DG COMP and competition Commissioner Vestager.

In February 2020, shortly before the outbreak of the Covid-19 pandemic in Europe, France and Germany further obtained the support of Italy and Poland to tighten the pressure on the Commission, which at the time was still reluctant to change its merger control framework (Altmaier et al. 2020). After a month-long process, the political work and coalition-building rallying a larger number of member states paid off: for the first time since 1997, in November 2021 the Commission initiated a revision of its market definition notice (European Commission 2021a). This change was in line with French and German preferences as the Commission committed, again for the first time, to take into account ‘global competition’, primarily from US and Chinese companies, when assessing the relevant market for its merger decisions (Interviews 15, 17). Whereas successive competition commissioners since the 1990s had only spoken pejoratively about European champions, a more accommodating, albeit still reluctant, stance became visible in recent years. Again, the key goals of EU merger rules have not been reversed, as they remain committed to the enforcement of a European market. At the same time, the underlying instruments were adjusted to favour the emergence of European champions.

Conclusions

This article traces recent changes in EU competition policy. Competition policy is one of the few supranational policy fields, with the European Commission having many competences and authority. In view of its strong legal provisions, it is also considered a relatively stable and depoliticised policy field. However, the past decade has brought a remarkable overhaul of EU competition policy. Changes have become visible in all fields involving state action and thus include Important Projects of Common European Interest, state-aid provisions, and merger-control guidelines. Due to the supranational character of the domain and its firm anchoring in European law, changes in EU competition policy mostly happened through the targeted adjustment or re-interpretation of existing instruments – thus ‘second-order change’ (Hall 1993) – rather than their removal or the creation of entirely new instruments.

We have documented why and how France and Germany, the EU’s two largest member states with most financial resources, have been decisive to promote these changes. Aligning their positions and politicising EU competition law, France and Germany at times challenged key features of the competition policy regime and the authority of the Commission. At various occasions, France-Germany evoked the notion of market failure or market insufficiencies, to be addressed via new forms of EU competition policy. They also advocated for greater political intervention to enhance European industrial competitiveness, and that of their own national industries, on the global level. A strong reluctance towards (further) supranationalization of EU policy making, as suggested by the new intergovernmentalism, thus becomes visible also in one of the oldest policy domains of European integration.

As a consequence, competition policy is less regulatory and depoliticised as it might have been in the past (cf. Majone 1994, 1997, 1999). Depending on the EU treaty basis, the intensity of preferences, and the divergence of positions held by France-Germany and the Commission, different strategies to promote policy change became visible. This theoretically inspired and empirically traced variation provides a more detailed and comprehensive picture of recent shifts in EU competition policy than competing explanations. For instance, other than accounts inspired by neofunctionalism suggest (cf. Di Carlo and Schmitz 2023), we find little evidence of quasi-autonomous supranational policy entrepreneurship with respect to the observed changes. At the same time, important controversies not only emerged between supranational and intergovernmental actors, but also among different camps of member states.

Future research should scrutinise these political controversies between the various actors more closely. Our typology of intergovernmental political work provides a starting point and should be tested against other empirical cases, both inside and outside competition policy. Will France and Germany continue to promote and at times enforce changes in EU competition policy that serve the interests of their national economies most, or will the Franco-German alliance be of a temporary nature, with Germany eventually moving back to more ordoliberal principles? Will smaller member states form formal and longer-term coalitions challenging the dominant role exercised by France and Germany, as some of them already did in EU fiscal policy in the form of the ‘frugals’? Will the European Commission take a firmer stance vis-à-vis Franco-German attempts to promote changes in EU competition policy or, as the new intergovernmentalism would assume, will it side with these two governments to expand, or at least not to lose, its own opportunities to influence?

Perhaps most important is the question whether the relaxation of competition policy will lead to a European disintegration. After all, member states in the past delegated competencies to the European Commission in order to create and secure ‘credible commitments’ (Majone 1999; Moravcsik 1998: 73–7). Some policymakers now worry that contemporary developments may in the medium term lead to the renouncing of a fundamental objective of EU competition policy, namely, to prevent market fragmentation within Europe (Politico 2023a). Ongoing academic and political debates about the financing of the EU’s planned ecological and digital transitions, together with forthcoming reports about European economic competitiveness (European Commission 2023b), will certainly address issues of competition policy.

Interviews

Interview 1. French ministry of the economy, senior official, via Zoom, 16 December 2019.

Interview 3. French ministry of the economy, former senior official, via Zoom, 26 January 2021.

Interview 4. French ministry of the economy, senior official, via Zoom, 15 March 2021.

Interview 8. DG COMP, European Commission, senior official, via Zoom, 24 March 2022.

Interview 11. German ministry of the economy, senior official, by phone, 13 April 2022.

Interview 14. Bundesverband der Deutschen Industrie (BDI), representative, via Zoom, 26 April 2022.

Interview 15. Brussels-based electronics industry lobbyist, via Zoom, 29 April 2022.

Interview 17. DG COMP. European Commission, official, by phone, 20 May 2022.

Interview 18. German ministry of the economy, former senior official, by phone, 2 June 2022.

Interview 23. Permanent representation to the EU, Northern EU member state, country non-disclosed, via Zoom, 28 September 2022.

Interview 24. Permanent representation to the EU, Northern EU member state, country non-disclosed, via Zoom, 10 November 2022.

Interview 25. DG GROW, European Commission, former official, via Zoom, 27 January 2023.

Interview 26. Prime minister’s office, Southern EU member state, country non-disclosed, via Zoom, 11 February 2023.

Interview 27. Former EU affairs minister, Eastern EU member state, country non-disclosed, via Zoom, 2 March 2023.

Interview 28. Permanent representation to the EU, Southern EU member state, country non-disclosed, by phone, 26 April 2023.

Interview 29. European Council, senior official, via Zoom, 23 May 2023.

Acknowledgements

For helpful comments and suggestions, we would like to thank the editors and anonymous reviewers of West European Politics, as well as Andreas Eisl, Frédéric Mérand, Craig Parsons, Luuk Schmitz, Etienne Schneider, Timo Seidl, and Laurent Warlouzet. An earlier version of this article was presented at a workshop organized by the French-German Institute in the Villa Vigoni at Lake Como. For a very stimulating discussion, we would like to thank Mario Monti, former EU Commissioner for Competition.

Disclosure statement

No potential conflict of interest was reported by the author(s).

Additional information

Notes on contributors

Salih I. Bora

Salih Isik Bora is an associate researcher at the Centre for International Studies at Sciences Po, Paris. His research interests concern French European politics and the politics of European strategic autonomy. His work has been published, among others, in the Journal of Common Market Studies and the Journal of European Integration. [[email protected]]

Lucas Schramm

Lucas Schramm is a researcher and lecturer at the Geschwister Scholl Institute of Political Science at Ludwig Maximilians University, LMU, Munich. His research focuses on EU crisis politics and Franco-German political relations. His work has been published, among others, in the European Political Science Review and the Journal of European Public Policy. [[email protected]]