A new “Traffic Light” vision for German competition policy

A red-green-yellow “traffic light” coalition among Social Democrats, Greens and Liberals emerged in Germany’s general elections a few months ago. The three parties are seeking a new federal government mandate based on a coalition agreement, published last week. Expectations are that Social Democrat Olaf Scholz will likely succeed Angela Merkel as chancellor at the beginning of December, accompanied by the Green nominee for the Federal Ministry for Climate, Energy and Economy, Robert Habeck.

German competition law has been overhauled several times in recent years, in most respects to enhance already vigorous enforcement. The latest changes came into force only at the beginning of this year. The “Traffic Light” coalition has identified several areas where they believe that competition policy and enforcement can boost innovation, consumer rights and social justice. Here we highlight five key topics. Specific changes are yet to be defined, but these topics do illustrate that the direction of travel for competition policy in Germany, like many other parts of the world, continues beyond the consumer welfare standard towards broader policy objectives.

Consumer rights: new powers for the Federal Cartel Office

The coalition partners heard the FCO’s constant calls for more powers in consumer rights. The parties agreed to explore how the FCO might be equipped with new enforcement tools to curb “repeated and sustained violations of consumer law”. They may draw inspiration from a study on the public enforcement of consumer law commissioned by the Federal Ministry of Economics and Energy in 2018.

New EU initiatives: Renewed push for break-ups

The ”traffic light” coalition acknowledges and supports the dramatic competition law reforms that are underway at EU level. The coalition is fully behind an ”ambitious“ Digital Markets Act and EU merger control rules to prevent strategic acquisitions of potential competitors (so-called killer acquisitions). They also favour uniform interoperability obligations for dominant companies, which, at the same time, shall ensure “the secrecy of communication, a high level of data protection and high IT security and end-to-end encryption”.

But that is not all. The coalition would like to see even stronger EU enforcement powers - to unbundle (effectively break-up) dominant companies as an ultima ratio in cases of entrenched market power even where such firms have not been guilty of any abusive behaviour. In Germany, the unbundling spectre has flared up several times in the past. In 2010, it was put forward by the black-yellow coalition and at that time supported by the FCO and the Monopoly Commission. At the time, this was motivated by concentration in the energy industry, but the attempt failed. Now it’s back to life.

Sustainability and competition law: No initiatives

The coalition prominently supports climate protection, a carbon neutral industry and the European Green deal, but does not identify a distinct role for competition policy in the attainment of these goals. At first sight, this may appear surprising, as the links between sustainability and competition law have been firmly on the agenda internationally and, in Germany, the Greens are vying to be part of the new government. The coalition may have decided against an independent German vision in light of various reforms advancing at EU level. For example, new EU guidance for sustainability collaborations and joint projects between competitors are said to be issued by December 2022. However, so far, there are no competition policy proposals to facilitate the “greening” of the German economy.

Railways: Strengthen incumbency for environment

The coalition hopes to strengthen the position of the state-owned incumbent, Deutsche Bahn, and to increase investment in its infrastructure. This ignores recent calls from Germany’s Monopoly Commission to break up Deutsche Bahn group into an infrastructure and a railway operations company. To implement climate policy goals, the coalition want to further develop the Rail Transport Master Plan, increase rail freight transport to 25 percent by 2030 and double passenger transport performance.

Mergers: More muddle for ministerial approvals

In German merger control, the Federal Minister for Economy and Energy can overrule a merger prohibition decision adopted by the German Federal Cartel Office; this is the so-called “ministerial authorisation”. The coalition plans to introduce changes to this highly political tool, which, if adopted, will increase oversight of the Ministry but inevitably complicate the process. First, the aim is to involve the German Parliament in the decision-making process. This would add transparency, but also introduce parliamentary politics in an already politicised procedure. Second, third parties’ rights to challenge ministerial approvals before the courts would be enhanced. Since 2017, competitors, suppliers and interested parties have been virtually stripped of opportunities to challenge a ministerial approval. The coalition now envisages a U-turn back to a more claimant-friendly “lower standard” to challenge the Ministry. The likely result is longer and less predictable merger review procedures in a select class of cases.