THE COMPETITION Authority has warned against diluting current merger rules in a bid to counteract the effects of the recession.

In its annual report, published yesterday, the competition watchdog said economic downturns tend to be “breeding grounds for cartels and other anti-competitive behaviour”.

It said Ireland needs to be “extra vigilant” against cartels and mergers that could lessen competition here.

This comes at a time when the Government has set aside established merger rules to allow it deal with any mergers or takeovers in the banking sector that it feels are in the national interest.

Chairman Bill Prasifka told The Irish Times that the authority had consulted and liaised with the Department of Finance in relation to the Credit Institutions (Financial Support) Act.

“We have advised on what the potential competition issues are,” he said. “In the medium to long term, competition is going to be important, even in the banking sector.”

He declined to comment on calls from some quarters to merge AIB and Bank of Ireland and to reduce the number of major Irish-owned financial institutions from six to three.

The authority’s report notes that it will have “fewer resources” to do its job as a result of the “difficult economic climate”.

Mr Prasifka said its budget is being cut by about 10 per cent this year.

The competition body received a grant of €6.78 million last year from the Department of Enterprise, Trade and Employment, but only spent €5.95 million.

It identified savings of €720,000 last June after a request from the Government to departments and agencies for potential savings. This mostly related to payroll costs from unfilled positions.

The competition watchdog is due to merge with the National Consumer Agency, a move welcomed by Mr Prasifka.

The total number of mergers notified to the body fell to 38 last year from 72 in 2007, due to the economic downturn.

All bar one deal – Kerry Food’s takeover of Breeo Foods – was approved.