Don’t let France ruin the single market

In my time as a European commissioner, I waded through a number of tough files — some had been stuck in the mud for decades, many prompted strong resistance from vested interests in the European institutions — but none was as fraught as the cross-border takeover directive.

The legislation set European standards for corporate takeovers between countries. When it finally passed through the European Parliament, it seemed like a hollow victory — the final draft contained just the bare outlines of what I had originally proposed. But the new directive formed part of a slow, steady march toward a fully functioning single market that would allow people, goods and services to move more freely across the European Union. That hard-won progress is now at risk.

Newly elected French President Emmanuel Macron wants to revive an old French ambition, namely to exclude a larger number of French companies from EU takeover regulations. According to the French, “vital strategic interests” are at stake when a foreign company makes a bid for a French-owned one.

Cross-border takeovers help facilitate the speedier adoption of new management ideas and inject much-needed capital into the Union.

This Colbertist instinct — that French wealth should serve the French state — runs deep among its elite. But it is also catching on elsewhere. German Chancellor Angela Merkel and Italian Prime Minister Paolo Gentiloni have voiced their support for Macron’s plans to introduce steps that would screen takeovers on “national security grounds.” By keeping a company’s shares outside the immediate grasp of any interested buyer, these countries could block or at least significantly slow down takeover processes and stand in the way of a truly open market.

Perhaps we need to remind ourselves why we introduced the cross-border takeover directive in the first place. Under the old regulatory scheme, companies faced huge hurdles to proposed takeovers in another EU member country, and legal protection provided to shareholders differed from country to country. Instead of navigating this patchwork of rules, the EU directive introduced a single set of principles that applied to all cross-border takeovers. That these are now considered standard practice demonstrates how far we’ve come in creating a single European regulatory space to boost cross-border business.

Takeovers are essential to a free-market economy. By allowing better-managed companies to take over their less well-managed, less profitable competitors, they not only boost that company’s performance but improve its return to shareholders. Cross-border takeovers help facilitate the speedier adoption of new management ideas and inject much-needed capital into the Union.

To my surprise, my home country, the Netherlands, is not immune to the protectionist trend either. My liberal party colleague and Economy Minister Henk Kamp has suggested legislation that would have the same anti-takeover effect as the French have proposed, namely a mandatory one-year moratorium on all takeover attempts. Dutch industry, which wants government to act as a shield against foreign takeover attempts, lobbied heavily for the decision. Dutch-British consumer goods company Unilever, in particular, has been a vocal proponent of this protectionist shift in takeover code.

Instead of giving in to pressure, the Dutch government should welcome foreign takeover attempts for forcing the management of companies such as Unilever to reckon with the failure of their corporate strategies and the underperformance of their shares. In the Netherlands, pension funds have sizeable interests in large Dutch companies, and boosting their competitiveness would have had a positive effect on pensioners’ savings. The resulting improvement in business practices would have benefitted citizens across the EU.

The European Commission should take a leading role in stopping countries from undermining cross-border takeover legislation. It has a wide range of formal powers to deal with non-compliance with EU law, including infringement proceedings in the European courts. In this case, the Commission would do well to issue a sharp reminder that countries are not allowed to introduce measures that “could jeopardize the attainment of the Union’s objectives,” the most important of which is still to turn Europe into an area of freedom.

Countries that attempt to protect their own companies from normal international market forces are clearly undermining that objective. The single market is still far from complete. The last thing we need now is for hard-won progress to be rolled back by protectionism.

Frits Bolkestein is former European commissioner for the internal market, customs and taxation.