A national humiliation

Wednesday, September 17, 2008

A national humiliation

Remarkably, in the torrent of media coverage about the HBOS/TSB merger, the words "European Union" are still almost entirely absent. Thus, most media outlets wrongly report the merger as a done deal with very little comment on the competition law aspects. 

Although the BBC, via its business correspondentRobert Peston, does explore this element, it does so in an entirely national context, reporting that the government will use the "national interest" clause (sic) in the Competition Act to over-ride concerns about competition.

Peston thus reports that the government will cite the national interest, which would be "served by the imperative of maintaining the stability of the financial system."

That will not wash with the EU and make no mistake about it, the EU is in charge here. It is a fundamental principle of our relationship with the EU that its law over-rides ours. This merger is no different – the dominant law is the so-called "merger regulation" and this takes precedence. Whatever the media might report, therefore, this deal is not done until it has been approved by the EU – specifically DG Competition.

We are reminded that, ordinarily, this merger would contravene conpetition law by an article from Reuters which recalls the government blocking the £18.5 billion bid by Lloyds for mortgage bank Abbey National, in July 2001.

"The merger would be against the public interest and should be prohibited," trade and industry secretary Patricia Hewitt said at the time, arguing the pair would have dominated current accounts and smothered competition for small business banking.

That "maintaining the stability of the financial system" will not wash is born out by a recent ECB report on precisely that subject – the stability of the financial system. It affirms that, "Policy actions in the context of crisis management will [i.e., must] preserve a level playing field," and then goes on to add: "Especially, any public intervention must comply with EU competition and state-aid rules."

Competition rules do not fall just because there is a financial crisis.

The defence of "national interest" has been invoked many times by governments, often in respect of trying to block mergers, and most recently in a big way here, but it has never been accepted by the commission without additional mitigating factors.

In what is a very complex and arcane area, however, there may be a "get out" clause known as the "failing firm defence", where action to protect the interests of shareholders and consumers can be authorised. In this case, though, it has to be proved that any alternative (such as failure or alternative merger or even a takeover) would have been worse from a competition perspective.

That is not something that the national authority is "competent" to decide and it will be up to the commission to conduct its own investigation and report accordingly. This could take as long as nine months although officials will doubtless be pulling out all the stops to facilitate a speedy announcement.

To complicate matters, any ruling by the commission could be challenged in the ECJ, by any other member state or even another bank, aggrieved by the decision, dragging the process out even further.

That said, it is not a given that the commission will refuse to authorise the merger. The point is that only the commission can approve it. Neither Messrs Brown nor Darling are in charge. They have no authority in this matter.

Another point is that there is no guarantee that the commission will approve the merger. It could even do so conditionally, requiring restructuring of the new company, or that assets be hived off or whole divisions sold.

Whatever happens, this does underline the central fact that our government is no longer in control of its destiny, even where vital national interests are at stake. We are, in that respect, in exactly the same position as Malta (with just as little power).

That island state is reeling under the impact of a ruling from competition commissioner Neelie Kroes (who will also rule on the HBOS merger) which has declared illegal plans for privatising its shipyards. Former Prime Minister Karmenu Mifsud Bonnici, leader of the Campaign for National Independence,has described comments by the competition commissioner as "a national humiliation".

"The will of the European Union is superior to the will of the majority of the Maltese people. The national interest safeguarded by the Maltese government has to be sacrificed to the EU competition rules," he adds.

Bonnici is not wrong. And whether Neelie Kroes approves or rejects the HBOS deal, we too are undergoing our own form of national humiliation. Just don't expect the media – and especially the BBC – to report it.

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A wake up call

We should have been rejoicing at the publicity given to Ian Fells' report on the forthcoming energy crisis, reinforcing as it does, the warnings we have posted on this blog. But, although it did get some useful coverage, Google Newsrecords only 32 news articles. That is a trivial number – the Nick Clegg speech, for instance, gets 1,699 references.

Oddly enough, it was the marketing arm of the WWF, an organisation which masquerades as a newspaper publisher by the name ofThe Daily Telegraph which seems to have given the report the most prominence, offering a leader which notes that, "Wake up calls do not come any more strident".

As wake-up calls go, though, this is already yesterday's fish and chip wrapping, as the issue has not attracted any heavyweight (or any) comment from the opposition parties, which means that it lacks that all-important element of political controversy which will set the issue alight.

Actually, Fells' report was produced for the Conservative Party, senior members having been sent copies some many weeks ago, so they have had plenty of time to craft a response and synchronise its release with the publication of the report, the date of which was flagged up well in advance. The fact that there has been no comment, therefore, suggests that the Party was unwilling to make known its views on this issue.

What may have deterred them is Fells' advocacy of nuclear energy, and his quite sensible warning that renewables cannot possibly deliver enough energy to keep the lights on. But another uncomfortable suggestion is that financial incentives will be needed to restore investor confidence after policy vacillation and injudicious market intervention. 

Fells actually advanced the view that there may have to be a minimum floor price for low-carbon, new-build electricity "to stimulate new nuclear build". One idea he has is that the electricity price to be guaranteed by letting a 50-year contract (or concession) at a fixed price (with escalators) for electricity supply and inviting appropriate consortia to bid for the contract. 

I do not know whether Fells is being mischievous in offering this idea but one hopes that he does realise that this would be illegal under EU state aid rules, which would also prohibit and other type of financial support for the nuclear industry.

One suspects, however, that Fells – being an energy guru rather than an expert in community law – is unaware of this, or to the extent that we have been stitched up by EU rules to such an extent that both this and any other government has very little room for manoeuvre. On the other hand, one would like to think that the shadow energy secretary is aware of the problem but experience would suggest otherwise.

Add to this the poisonous effect of the "climate change" obsession on the energy debate, and it is hardly surprising that the Conservatives are not diving into that debate with any great enthusiasm. At some time, however, the official opposition is going to have to come clean and state its intentions. That time, we would aver, is already overdue and continued delay will make matters worse.

But it is not only timing but content that matters. In other context, Simon Heffer comments on the paucity of realistic economic policy emanating from the Conservatives, noting that, "…there is no point the Tories coming into power if all they intend to do is tinker at the margins of Labour's disastrous and ignorant approach to economics."

By the same token, there is no point in the Tories coming into power if all they intend to do is tinker at the margins of Labour's disastrous and ignorant approach to our energy supply. In fact, when it comes to Fells' main thesis, that energy security is more important than climate change, Labour is more in tune with reality than the Tories.

Nevertheless, with the Tories enjoying a commanding and increasing lead in the polls, one can see the logic in keeping silent. At a party political level, it does not make sense to make controversial pronouncements which might upset potential voters and thereby prejudice success at the next electorally mandated reshuffle general election.

The problem with that, though, is that the energy industry needs a clear lead now if it is to plan its long-term investment strategy and avoid the delay that will come with waiting until the Tories are elected – a delay which will ensure that the lights do go out, as Fells predicts. His "wake up call" was delivered not to the media but to the Conservatives.

To respond, the Tories must formulate and agree a coherent policy, which they show no signs of having done. Without it, they may well win the election but, when they are in office, the voters will be less than impressed when the lights go out.

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