Germany 1: Europe lost
Germany, for much of the time an unequivocal advocate of the European Union (EU), perhaps did more than most last week to damage the EU's global ambitions. Germany's move also highlighted how fragile the union can be when faced with an economic slump and powerful domestic lobbying groups.
After a momentous 12-year effort by bureaucrats to hammer out a deal on cross-border corporate takeovers in Europe, the European Parliament threw out the proposed law. The legislation was mainly scuppered by German companies, worried about hostile takeovers from foreign companies. The main pressure inside Germany came from unions, desperate to protect the country's already restrictive labor laws, and corporate interest groups that are equally desperate to keep their own privileged positions.
While the winners in Germany can say they acted in the national interest, the ultimate loser is the wider EU, its capital markets and its credibility as an institution with which to do business. Maybe it's no coincidence that General Electric's (GE) takeover of Honeywell failed in the same week. No wonder U.S. executives are confused. So is everybody else.
The defensive measure by the Germans has now legitimized narrow-minded self-interest groups around the continent. Governments will pass laws to put in place measures to block hostile bidders and so stifle unwanted competition. Moves to liberalize financial markets across Europe will now be put on hold and investors worldwide will think again about the future credibility of the EU as a free-market trading bloc.
Monopolies like Electricite de France (EdF) can now resist foreign bidders even while moving into foreign energy sectors, just as EdF recently did in Spain and Italy. Meanwhile, those energy sectors will now arm themselves with the necessary equipment to block any further foreign takeover issues.
Above all, it has derailed a common legislation to help deal with the internal market. A uniform set of rules would have applied to takeovers, while shareholders' rights and the disclosure of company decisions would have been more transparent.
Corporate jingoism is once again legitimized at the expense of the wider market, which everyone is always trying to talk up. But the ultimate losers will be investors who are looking for a lead in greater transparency and accountability. They will certainly think again, as GE will, before doing business with the Europeans.
Future members of the EU will also take note of what the Germans have unleashed. For emerging markets, selling off national assets are unpopular moves at the best of times. In Poland, the sale of sugar or oil concerns to foreign bidders has been made even more unpalatable because of the economic slump and high jobless figures. No Polish politician hoping to be voted in this September would possibly allow state sell-offs if it meant losing votes. The Germans have given all of Europe's lobbyists a good lead. Forget common guidelines, protectionism rules.
Now, for the investor, it really is a jungle out there.
