Does size matter? Europe seems to think so. The idea of creating European industrial champions is making a comeback. The logic is tempting: bigger companies, greater scale, stronger competitors on the global stage. But there’s a catch. What if making companies bigger ends up undermining the very competition that makes them competitive? Industrial policy and competition policy need not be at odds. The former can help build industrial capabilities, while the latter ensures that companies remain under pressure to innovate and improve. And perhaps the tension between the two isn’t a problem to be solved, but a safeguard worth preserving. Europe needs champions. But the real challenge is making sure they’re competitive ones, not merely protected ones.
This article is the first of a new collaboration between Tra i Leoni and MOPS. Stay tuned for more!
Does size matter? The seasoned economist would answer, “It depends” — the frustrated journalist would ask, “On what?”
In competition policy, size is a very touchy subject. A big size can be a reason for concern because too much power in the hands of a single company might affect competition in a negative way, keeping new entrants out, prices high, and quality low.
National champions have been a very specific breed of big anti-competitive companies in the history of competition policy. They were created to compete internationally but were often protected from the very competition required to foster innovation and, in turn, competitiveness on the international stage.
National champions are a staple of the genre when it comes to ineffective policymaking: so, how is it possible that the October 1st FT headline reads “Dealmakers line up to test EU’s appetite to create European champions”?
The answer lies in the shift from globalization to geoeconomics that affected governments’ approach to policymaking. Previously, foreign policies mostly leaned towards absolute welfare and prioritized integration. Now, governments are keener to leverage their control over strategic nodes in the economy and reduce their strategic dependencies: they are more inclined towards power and resilience.
In his 2024 report Draghi diagnosed Europe’s lack of competitiveness and argued that the policymaking of the bloc had to be overhauled to address the changing geopolitical regime. In the blueprint he put forth, he mentioned a mix of industrial, trade and competition policies as crucial means to that end.
In geoeconomics, industrial policies have become the tool to carry out national interests – and industrial champions have been brought into the discussion as a possible way to achieve that. However, that is set to create tension with competition policy enforcers due to the tainted history that champions bring along.
The seed of the tension can be traced back to what they are prioritizing: industrial policies often prioritise the countries’ interests while competition policies focus on consumers’ welfare.
The final revised EU Merger Guidelines, expected by the end of 2026, together with talk of European champions, have brought the matter at the center of the political debate. The back and forth between Ursula von der Leyen, President of the European Commission, and Teresa Ribera, Executive Vice-President responsible for competition policy, shows how the tension exists even within the European Commission itself.
At a recent Bocconi event titled “Revising EU Merger Guidelines”, scholars, experts, and competition enforcers came together to discuss what to expect and how to navigate such a tension at the policy level.
Daniele Calisti, Head of Unit for Merger Policy, explained that the revised EU Merger guidelines will not change EU merger law itself: they will update how the European Commission assesses mergers under the existing law. The tricky part is that there will not be a “one-size-fits-all” answer when it comes to enforcing competition policy, even more so when it comes to M&A cases.
And that leads us to one of the most important takeaways of the event: Europe’s need for scale must not become an excuse for a free-for-all M&A buffet.
According to the FT article, one Brussels-based M&A lawyer pointed out that “Every big case will now be packaged differently and presented as a test case to create a European champion.” For policymakers to give in to the urge of size for the sake of it would be a short-sighted move, pushing them back into the “national champion” trap.
Fiona Scott Morton, Yale professor and former chief economist at the US Department of Justice, was one of the panelists. In her policy brief, she made it clear that it should never come down to choosing between competition policy and industrial policy. Quite the opposite: she recognizes them as complements.
Except when “industrial policy is deployed destructively”, there need not be a conflict between competition and industrial policy. Competition policy already encompasses the use of industrial policy: it can address market failures, such as underinvestment in R&D due to positive spillovers, and help counter state-induced distortions, such as subsidies that give firms an artificial competitive advantage unrelated to their underlying productivity.
“When competitiveness is understood as the productivity generated by all of societies’ resources, it is straightforward to see that competition supports competitiveness.” Competition becomes one of the foundations of competitiveness because, to attract more consumers, competition pushes firms to innovate more, improve quality, and lower prices.
Fostering size at the expense of competition would be treating the symptoms, not the disease. Size itself cannot solve Europe’s lack of competitiveness. Quite the contrary: that would overlook deeper horizontal issues that Mario Draghi already identified in his report: one of the biggest obstacles to companies’ scale-up is the absence of an effectively large single market in the EU bloc.
The lack of harmonization among the EU’s 27 member states can be an area where deploying industrial policies might deliver returns in competitiveness. The recently proposed combination of Airbus, Leonardo, and Thales’s space businesses, known as Project Bromo, might offer an interesting opportunity for Europe in that regard.
Given its cross-national foundation, the proposed joint venture might become the catalyst for a larger pool of private and public capital, raising money from the respective companies’ countries and laying the groundwork for a wider EU space market.
Such a virtuous cycle hinges, however, on a very important condition: policymakers must not protect the EU space joint venture from competition in the space industry. That would kill the chances of having more innovation, higher quality and lower product prices. It could undermine the joint venture’s international competitiveness – and that of the bloc. In 2006, NASA selected a young SpaceX as one of two partners through a competitive process, showing how public support can help a challenger emerge rather than simply protect established incumbents.
Whether “European champions” will be a chance for industrial policy’s redemption or just history repeating itself, only time will tell. Today, however, there’s room to challenge another stigma – the bad rep around the tension between competition policy and industrial policy. Framed as a lack of political and economic coherence, it might also be appreciated as a mechanism for keeping policymakers accountable.
That tension might turn out to be the difference between another generation of anti-competitive champions and the kind of champions that Europe really needs – competitive ones.
Vittorio Quaglione is an economic consultant, Teaching Assistant at Bocconi University, and founder of MOPS (My Own Personal Shitshow). He sees economics as a puzzle with no picture on the box, and pieces that occasionally change shape. MOPS is where he tries to make sense of it, usually finding more questions than answers, with a suspicious number of pop-culture references along the way