Geopolitical risks and prudential merger control

Tensions in international trade partly motivate the current call for the creation of ‘national’ or European champions.¹ The (implicit or explicit) rationale behind it may be summarized as follows: Because of economies of scale, lower costs of input factors (labour,² energy, raw materials, and trade costs), stricter environmental regulation at home, and increased productivity abroad, manufacturing imports have dramatically increased over time. As a result, while European consumers (and some industrial buyers in the value chain) may have benefitted, Europe has partly lost its industrial base and has become unable to provide autonomously for the inputs and final products it needs. Europe increased its dependence on manufacturing in foreign countries (such as China) and has become vulnerable to import shocks (as the Covid-19 crisis and, to a smaller extent, the 2021 Suez Canal obstruction, have shown). To enable EU firms to compete at a global stage with industrial giants in particular from the U.S. and China, Europe has to enable its firms to become larger and more productive.