International Policy Digest

Xinhua
World News /13 Nov 2020
11.13.20

Pandemic Fuels Heavy-handed EU State Interventions

Italy is taking advantage of the EU’s temporary willingness to overlook excessive spending to indulge in some of its more statist tendencies, like seizing greater control over businesses it considers strategically important. Some of these interventions, such as the launch of subsidy schemes and state-backed lines of credit for small and medium-sized businesses, could be regarded as sensible strategies to support beleaguered businesses in unprecedented times. Others, however, lean towards the blatantly opportunistic – none more so than the effort to bring privatized companies back under state control.

This kind of ‘big government’ meddling and heavy-handed state intervention in industry has a long, dark history in Italy, but it is also out of kilter with the decades-long, EU-wide trend towards privatization and market competition. While Italy should have been ramping up its preparedness for the second wave of COVID-19 that is now shutting down regions like Lombardy for the second time this year, the Italian government instead went on a spending spree to reshape key sectors, renationalizing the chronically failing airline Alitalia and embarking on a plan to create a single broadband operator out of Telecom Italia (TIM) and upstart challenger Open Fiber.

These moves leave regulators in Brussels asking whether Italy’s prime minister, Giuseppe Conte, is using the global health crisis as a springboard from which to reverse the trend of declining state influence over Italy’s economy, by taking assets back into public ownership that were sold off decades ago.

Moves likely to breach antitrust laws

Conte, in power since he was elevated to the premiership by an uneasy alliance of left-wing and right-wing populists in 2018, has long prioritized faster broadband speeds as a building block of Italy’s economic future. His government’s current attempt to forcibly merge Telecom Italia (TIM) and Open Fiber network assets, however, is likely to set off red flags with EU antitrust authorities for sharply and unfairly restricting competition. It could also slow down the scheduled rollout of ultra-fast broadband in Italy, an infrastructural need that’s become all the more critical as teleworking and remote learning arrangements proliferate.

While the EU obviously supports efforts to build a modern digital infrastructure that can meet the needs of Italy’s citizens, officials in Brussels won’t favor the reversal of 30 years of deregulation that would effectively result in the creation of a new monopoly with heavy state involvement. In fact, officials like Margrethe Vestager, the Executive Vice President of the European Commission for A Europe Fit for the Digital Age, have made it clear encouraging competition – not stifling it – is the only way forward for countries to catch up on connectivity.

Monopolies slow progress

TIM’s record on building a broadband network when it previously enjoyed monopoly status was underwhelming, to say the least. Before Italy opened up the market to competition, the country’s Internet connectivity coverage was regularly rated among the lowest in Europe. Seeking to shake up the status quo, the Italian government’s sovereign wealth fund co-founded Open Fiber with the partially-state-owed energy giant Enel in 2015. It took Open Fiber’s acquisition of Milan-based installation company Metroweb to finally goad TIM into action on broadband, sparking an acceleration in ultra-broadband provision that elevated Italy’s coverage to 30%, only a few percentage points behind the continental average of 34%.

Despite this progress, TIM’s substantial copper cable assets are in need of a fiber optic overhaul, and the company’s sluggishness on that front is an impediment to progress in Italy’s broadband connectivity. Critics point out offering TIM a fresh monopoly opportunity may also look a lot like state aid, especially as the company was handed a €116 million fine in March for slow-rolling a fiber-optic rollout in rural areas to suppress competition. That has made it unlikely Italy will hit its target of connecting 80% of these underserved ‘white’ areas to a broadband grid by the end of this year.

Backdoor power grabs

If Brussels has been less than vocal about Rome taking advantage of the pandemic to interfere in business, it is likely because other EU member states are using the crisis to even more provocative ends. True to form, the right-wing populist government of Hungary – a perennial EU black sheep in terms of the rule of law – has proven unable to pass up a crisis.

Back in March, in the early days of the pandemic, Hungarian Prime Minister Viktor Orbán declared a ‘state of danger’ in the country, ostensibly to fight the spread of the coronavirus. It gave his government far-reaching powers, enabling ministers to issue dozens of decrees, impose taxes, and redistribute financial resources away from opposition-led communities.

The European Parliament passed a resolution condemning Budapest (together with Poland) for the coronavirus power grabs, labeling such actions ‘totally incompatible’ with the bloc’s values but stopping short of imposing sanctions. Hungary’s emergency status was revoked in June, but human rights organizations have nonetheless expressed concern Orbán can reverse this decision at any time and permanently damage the rule of law.

For now, at least, Orbán’s camp appears to have moved on to their next power play: seizing control of Budapest’s airport, which was growing quickly as a European hub before the COVID-19 crisis but which has now seen its valuation drop. The airport is currently co-owned by foreign investors including Singapore’s sovereign wealth fund (GIC) together with a Canadian pension fund and German airport management firm AviAlliance, but Orbán allies are mounting an unsolicited bid to take back an asset the Hungarian premier has seen as “strategic” since it was privatized while he was in opposition in 2005.

Damaging the free market

The pandemic has already wrought incredible harm on economies the world over, but it’s also offered opportunist European leaders a chance to take economic measures that would be roundly criticized under any other circumstances. Rather than balancing responses to the coronavirus with the need to uphold equitable market conditions, a number of EU governments have instead been using the pandemic as an excuse to seize assets and rework whole sectors of the economy in whatever way they see fit. Thus far, Brussels has not demonstrated that it is willing or able to stop them.