Why banks escape from competition rules but not pharmaceutical firms

José Manuel Barroso, President of the EC, received Anshu Jain, co-Chairman of the Management Board of the Deutsche Bank

Antitrust EU Commission services have an excellent record in identifying, monitoring, substantiating with facts and finally punishing cartels and dominant position abuses. This last week two concrete cases stand witnesses to that.Protecting consumers

In the first case the European Court of Justice rejected an appeal against a General Court’s decision, which had upheld almost completely the Commission’s decision to impose a fine of around €60 million on the pharmaceutical firm AstraZeneca, for abusing dominant position with its anti-ulcer medicine, Losec.

In the second case the Commission imposed fines of around €1.47 billion on a worldwide cartel of computer monitors and TV screens producers. The Commission noted that “Chunghwa, LG Electronics, Philips and Samsung SDI participated in both cartels, while Panasonic, Toshiba, MTPD and Technicolor participated only in the cartel for television tubes”. Unquestionably the Commission performed an excellent job on both those cases. It was exactly the same high quality antitrust investigative performance and law enforcement practice as in the two renowned cases of the more distant past, the Adriatic Sea shipping cartel and the cement producing oligopoly.

There is no question that the quality of the antitrust legislation plays a crucial role, in making consumers’ daily lives easier and cheaper. Detailed antimonopoly rules are a “sine qua non” for the smooth function of markets and the long-term social cohesion. However, without a competent and well-trained implementation mechanism, legislation may become meaningless.

That is why it is very important to praise the successful functioning of the Commission’s antitrust services, which are making sure that competition works in markets. Without it, our society will end up as hostage to business gangs.

Not for banks

Unfortunately this good antitrust performance by Commission services stops outside the financial service sector doors, with the striking example of banks, where the big ones are being characterised as of the kind that cannot die! Given that, Eurozone banks are being served by the European Central Bank, meaning that the ECB supplies them, all of them creditworthy or not, with abundant liquidity at interest rates pretty close to zero. At the same time all the other business in the entire economy are suffocated from a distinct lack of credit. As everybody knows banks are in the trade of money, which is the “raw material” of their business. There is no other sector of the economy for which the public authorities are providing them with the raw material of their trade for FREE! If this is not a breach of competition laws utterly favouring the banks, then words have lost their meaning.

We are not examining here the recapitalisation of certain lenders in Greece, Spain and Ireland. This is quite a different issue and the competition authorities of the EU have given the green light, to avoid certain catastrophe in those countries.

The problem is that the ECB is still supplying more than 5,000 Eurozone banks with the “raw materials” of their trade for FREE. However it must be acknowledged that this is not a particular case for Eurozone. In a much more extended manner the same happens in the US and Britain. In those two countries almost all major banking firms at some point of time were in the hands of the government, because the liquidity supply from the central banks was not enough to save them. They had also to be completely recapitalised with government money, again without questions being asked, if this is a breach of competition laws. As a result, banks became untouchables all over the world and still are being treated as if no good practice traditions or laws apply on them.

Last but not least this week the ECB confirmed once more that the lenders can always get their money for almost nothing. It is interesting to quote the press release issued by the ECB on 6 December. Here it is: “At today’s meeting the Governing Council of the ECB decided that the interest rate on the main refinancing operations and the interest rates on the marginal lending facility and the deposit facility will remain unchanged at 0.75%, 1.50% and 0.00% respectively”. Even on such an almost free supply of money lenders are still having profitability problems, due to embarrassingly high remuneration of their management and dealers.

For the AstraZeneca case, see: http://europa.eu/rapid/press-release_MEMO-12-956_en.htm?locale=en

For the cathode tube cartel, see: http://europa.eu/rapid/press-release_IP-12-1317_en.htm?locale=en

For the ECB press see: http://www.ecb.europa.eu/press/pr/date/2012/html/pr121206.en.html