The New Europe

Business European Style

Based on TR Reid, “Welch’s Waterloo,” in The United States of Europe.

Jack Welch

GE Chairman, 2000

Attempted merger with Honeywell

Time article on this incident

He claimed the merger was “complementary” not competitive

Because GE made large jet engines, Honeywell medium and small ones

His nemesis: A Eurocrat named

Mario Monti

Eurocrat: “a new governmental creature spawned by the movement toward common government on the continent (97)”

Monti

Son of banker from Milan suburb, studied economics in Italy and at Yale

Taught monetary theory at Bocconi University

Became president of the university

Pushed for borderless Europe

Ardent advocate for free trade

Frustrated that Bank of Italy did not measure the money supply so started producing his own estimates

Often offered jobs in right leaning Italian government

Asked to join the European Commission in 1995

As cabinet minister for financial integration, customs, common taxation

Served 4 years in this post before becoming Director-General for Competition

“DG Comp”

regulates mergers and acquisitions, pricing, business practices

power to fine offenders

e.g. Daimler-Chrysler 70 mln for charging different prices in different countries

EU Style:

Formalism

Mild mannered, formal, genteel econ prof, technocrat

American Style:

The back slapping, charisma of Jack Welch

“Call me Jack”

“No, grazie. You can call me Sgr Monti.”

EU Style:

Do your homework

EU regulators did months of research

Knew more about the companies and what they produced than they did

Asked about a piece of high-tech aircraft electronics produced by Honeywell, the GE people had never heard of it! (103)

Substance:

EU anti-big business, fear lack of competition will drive up prices

I thought this is what the US was about??

How did Welch get around US anti-trust regulators here?

Helicopter example

Spin-offs as “goodies” for the regulators

Throwing a dog a bone

Got him nowhere with the Europeans’

“Good-bye, Jack”

American Style:

If you fail through legitimate channels, use your political influence to get what you want

Welch called the President GW Bush on Air Force One on his way to European Summit, asked him to press his case!! (103)

Bush agrees! (Reid says, “foolishly” why not, unethically?)

Bush told the Europeans he was “concerned” US businesses were not being treated “fairly” by EU anti-trust regulators

The Europeans were outraged

“no longer the weak little sister who can be pushed around by swaggering Americans” (104)

EU Commission voted down proposal for merger 20-0

Cost to GE: shares plummeted from $60 to $33

And racked up hefty bills

$50 mln in legal fees!!

$25 mln to Chase Manhattan and other banks

Global level impact of the European Model/Monti’s Efforts:

Monti spearheaded effort to form the International Competition Network (ICN)

For coordination among anti-trusters in EU, US, Canada, Mexico, Australia and Japan (109)