Are European competition rules obsolete in the face of the Chinese threat?

This is the debate in Brussels as the powerful European commission seems set to veto a blockbuster merger of the train-making businesses of Siemens and Alstom.

The tie-up, announced in 2017, was billed as the birth of an all-too-rare European industrial champion -- a "Railbus" to match Airbus, Europe's aviation giant that competes toe-to-toe with US-rival Boeing.

"Do we want... the single market to become a supermarket for all the major powers, China and the United States," thundered Bruno Le Maire on Monday.

"Or do we want Europe to be powerful and sovereign?" demanded the French finance minister, who has led an impassioned campaign to defend the tie-up.

A view echoed in Berlin, which has also lobbied -- if less ardently -- for the deal.

"We need more European champions to stand up to Chinese and American competition," Peter Altmaier, Le Maire's counterpart, told the German daily Handelsblatt on Friday.

But the road to building a juggernaut is blocked by a formidable obstacle: EU competition law and Margrethe Vestager, the steely European commissioner whose job is to enforce it.

Since 2014, Vestager has grabbed headlines, facing down the world's most powerful companies, including iPhone maker Apple, which she ordered to pay 14 billion euros ($15.9 billion) in back taxes to Ireland.

A former Danish minister, Vestager has been celebrated as a hero for thwarting Silicon Valley, but the unexpected turn of the screws on big plans for Europe has come as a shock in Paris and Berlin.

In a 25-page manifesto published last week, the powerful German Industry Federation (BDI) demanded a rethink of European competition law in order to get tough on the Chinese superpower where multinationals are deeply enmeshed with Communist party power.

"While in China, large groups are created through state intervention, EU competition authorities only look at the European internal market as a relevant market for European mergers," it wrote.

Underlined, in tacit reference to the near-doomed merger, was "the example of the Chinese railway giant CRRC, born from the merger of two state-owned companies".

Vestager does not dispute the need to create European champions, just not in defiance of established rules.

In a highly exceptional move, the issue was discussed earlier this week by the EU's 28 commissioners, whose role in antitrust cases is to rubber-stamp what has been decided by Vestager and her teams.

Vestager did not deny to her counterparts the need to "face the clear risks of Chinese competition," according to her preparatory note for the meeting, a copy of which was obtained by AFP.

But she also defended existing competition law that "encourages good European champions".

"To be competitive abroad requires competition at home," she said.

According to French Commissioner Pierre Moscovici, the discussion was "frank and open", a diplomatic euphemism for a row.

"We are not naive," the former French finance minister said after the meeting.

"The Commission's thinking as a whole is not obsolete, we want to take into account the evolution of tomorrow's economy," he said.

Last year the Europeans agreed on a framework for tracking foreign investment in the EU, to address the concerns of the largest member states about acquisitions, mainly Chinese, in strategic sectors.

Nevertheless, there are two opposing visions of competition law in Europe.

- Defending 'Made in Europe' -

The first, of liberal-free market inspiration, wants strict enforcement of the rules regardless of political or strategic considerations.

Breaking the rules "would weaken our credibility without solving the underlying challenges", said an editorial in the Financial Times, praising the Danish Commissioner's intransigence.

Another camp would like more flexibility in the rules to preserve and promote the "made in Europe", as argued in an editorial in last Monday's Le Monde newspaper titled: "Save the European factory".

According to a merger lawyer in Brussels, who asked to remain anonymous, "European rules are not as restrictive as that, but some lawyers in the commission are very young and tend to be extremely zealous in handling cases to cover themselves".

The Commission, on the other hand, warns against too much flexibility.

"Our aim is to protect fair competition in the EU. Not doing so could also turn against Europeans," a senior official recently noted, pointing out that Brussels was also responsible for controlling the effects of US mergers on European soil.

The prohibition of a merger by Brussels is extremely rare: in ten years, it has blocked seven mergers and authorised more than 3,000.

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AIRBUS GROUP

ALSTOM

SIEMENS

APPLE INC.

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