Germany's protectionist muscle is beginning to twitch. Peter Altmaier, the country's economy minister, recently floated the idea of setting up a state investment fund to take stakes in German companies facing the threat of takeover by non-European rivals.
Now Altmaier has taken his idea a step further. He met this week with Bruno Le Maire, his French counterpart, to develop an European Union-wide industrial policy. The aim is to protect the bloc's industrial base from what Germany and France regard as predatory competition from China, and the threat to European industry from trade wars and tariffs emanating from an increasingly-protectionist US.
The two ministers want to enable EU "champions" to emerge in manufacturing, and in new industries such as electric cars and artificial intelligence. Their meeting came a couple of weeks after the European Commission angered the German and French governments by blocking the merger of Siemens and Alstom that would have created a supersized German-French maker of trains and signalling equipment along the lines of Airbus, the European maker of aircraft.
The creation of “national champions” has been a cornerstone of European industrial policy for decades. Indeed, one could argue that industrial policy was the founding ideal of the EU, which originated in the European Coal and Steel Community in the 1950s. Its most successful iteration is in France, where Airbus has its headquarters.
It was tried to no great effect in Britain in the 1970s to protect the car industry, which is now almost entirely owned by foreign companies.
Export powerhouse
Yet industrial policy is a relatively new idea in German economic thinking. As Europe’s – and arguably the world’s – export powerhouse Germany has had no need of state-enabled national champions. The country’s economic success over the past two generations, based on its Rhineland model of stakeholder capitalism, meant they more or less created themselves. That is why Germany is a world leader in the manufacture and export of cars and machine tools.
Now the Germans are having second thoughts. The idea can be traced to 2016, when Midea, a Chinese company, paid €4.5 billion to buy Kuka, a German robotics company. The takeover sparked fears that sophisticated technology developed in Germany by German expertise could be scooped up by foreign state-backed rivals and shipped abroad.
An interesting aspect of the thinking in Berlin is the terminology used to justify it. Altmaier does not speak of protectionism, or even of European champions as such. In an interview with the Financial Times earlier this week, he referred to the importance of protecting European industrial and technological "sovereignty".
His argument was that the EU needed to enable the emergence of companies big enough to compete with their Chinese and American rivals.
Germany and France have mobilised other EU countries to the cause. Last December in Paris, 18 European countries that style themselves “Friends of Industry” backed the development of an EU-wide industrial policy to help local companies.
“Our industry is facing increasing fierce competition from other major economic blocs, which are developing their own pro-active industrial strategies,” their joint statement said.
Ireland was not a party to that statement, though the Department of Business, Enterprise and Innovation says it is affiliated to the Friends of Industry.
Suspicions
There are understandable grounds for European concern about aspects of 21st century industrial competition.
Much of it centres on Huawei, a Chinese technology company that has become a lightning rod for suspicions that the Chinese communist party uses the country's biggest companies as tools for spying on the west and to advance its global ambitions.
This is a security threat that must be countered. If China wants to allay fears abroad that its companies are arms of the government it needs to make its state capitalist system more transparent and accountable.
Yet Germany’s sudden inclination towards protectionism risks undermining the EU’s most successful creation – the single market for goods. The commission was right to block the Siemens-Alstom merger, which it did on consumer protection grounds – a cause that may well get lost in the self-satisfaction of a European industrial policy.
There is also the risk that Berlin will back the wrong champions. One of the companies Altmaier appears to want to wrap a protective arm around is Deutsche Bank, an ailing lender that arguably needs to be broken up, not protected.
Deutsche Bank once bestrode the financial world. Now it is an example of a failed European “champion”, and its failure is all of its own making, not because it faced unfair competition.
Global economy
The EU’s regulatory and competition framework might be in need of updating to take account of the modernisation of the global economy. But Altmaier and Le Maire must not go looking for ways to reinvent the wheel. By definition every company listed on the stock market is a takeover target.
Too many takeovers destroy rather than create value and competition, which is why they must be heavily policed. The EU does not need an industrial policy because, as the commission demonstrated in the Siemens-Alstom case, it already has one.
