The European commissioner for competition is one of the most important and influential officials of the EU. In her own words, the incumbent, Neelie Kroes, believes that the aim of promoting a fair and free environment for businesses in the European single market has to be pursued by acting as a referee.
"If we think of the European economy as a football match, I set and enforce the rules of the game, in conjunction with the other commissioners," says Ms Kroes. "We make sure it is a fair match, and that there is punishment for people and companies that break the rules and spoil the game for others."
But the tasks that have fallen to Ms Kroes during the financial crisis should force us to consider whether the rules under which the commissioner referees are fair. Regulator and supervisor are embodied in the same institution. In the event of disputes, the commissioner and her staff materially behave as professional negotiators, well-equipped prosecutors and the court of first instance - all three roles are wrapped into one. Of course, private parties who feel they have been handed a wrong decision can appeal to a real court, but that is no reason not to ask whether the first stage of the process can be improved.
Although some consider the role of commissioner as that of a senior civil servant with some extra powers attached, the reality renders it a political function. Commissioners must deal with not only the Council of Ministers, but also increasingly with the European Parliament, which will fight gradually for the right to fire individual commissioners with a motion of no confidence.
On big issues, the pressure from different governments with opposing opinions and from other parties involved is so great that the commissioner will not feel free to make decisions. As a consequence, fear may drive decisions that are legally correct and unopen to challenge - but suboptimal in their effect on the market.
Flexibility in a crisis
Of course, during an economic crisis the rules for a free market have to be maintained, but that does not mean refusing any flexibility if this would disadvantage the European economy as a whole. A perfect example is the ABN Amro saga. The Dutch government is the owner of this bank, and the authorities wanted to integrate some parts of the former Fortis Bank. The commissioner had to refuse permission because after any such integration the market power of the combined entity would be too large. As a consequence, the civil servants of the Dutch Ministry of Finance and the European authorities have been quarrelling for months about which ABN Amro offices have to be sold to another bank.
In the meantime, everybody sees that the real question is not the market power of ABN Amro today, but the need to ensure that it survives and recovers. Separately, a rescue operation for DSB Bank failed because the other Dutch banks were afraid to coordinate a joint takeover, owing to possible problems with the EU. In such situations, creative legal solutions may bring about more success than any strict application of rules.
The solution to these problems is obvious: make a real distinction between political and legal matters. The upshot would see the task of the commissioner restricted to setting the rules and monitoring all market issues. A fully independent court should have the exclusive power to forbid mergers, takeovers and other transactions, and to impose fines and other measures. The commissioner would have the right to invoke these procedures, but would not have any obligation to do so.
Separation of powers
In this way, the commissioner could look to the political and legal aspects without the two becoming conflicted. She (or he) can reckon with the opinions of the member governments and the European Parliament, and handle political influences in a more natural way. Further, the role of the commissioner in making the rules will not be made problematic by having them caught up in any later involvement in legal decisions. On the other hand, to get the right balance in the European governance structure, private parties must also have the right to invoke procedures at the European competition authority or court, or to protest against forthcoming procedures.
Of course, more solutions are available. One could argue that the character of market supervision requires that all matters (political and legal) must be handled by an administrative body with a staff composed of not only lawyers, but also financial analysts and other professionals to look at all aspects. This body would have the power to prohibit mergers, to impose fines and other measures. Parties involved, in addition to the European Commission, would get the right to appeal to a court. The European Commission and third parties should have the right to ask for a ruling in a reasonable timeframe, to avoid situations of uncertainty if such a body postponed decisions or failed to make clear whether any action is to be taken.
For each solution, pros and cons may be found. However, each reasonable solution must fulfil the requirement that a split is made between the area for the politicians, who set the rules, and the independent professionals, who control these rules. The most important aspect, for the time being, is that discussion starts in the term of the current European Commission.
Professor Mattheus van der Nat is professor of treasury management at VU University Amsterdam and director Riskmatrix, Driebergen, The Netherlands.
E-mail: MvanderNat@riskmatrix.nl
