Competitive Supranationalism
1
Competitive Supranationalism:
Financial Globalization, EU Institutions and the EU Takeover Directive
ABSTRACT :
In the debate on the impact of globalization on national political economy, the increasingly central of the
European Union remains under explored. This article analyzes the role of the European Union as a
mediator of financial globalization by focusing on a crucial case study: the fifteen-year battle over the
takeover directive between 1989 and 2003. It presents a novel framework of competitive supranationalism
under the forces of globalization. EU policy-making on issues such as the takeover directive exposes a new
horizontal cleavage between the Commission and the European Parliament (EP), in addition to the
traditional horizontal cleavage between EU institutions and states. The EU Commission sides with
increasingly powerful investors, while the EP’s median point is closer to traditional interest groups, such as
labor and management. Under the post-1993 co-decision procedure, the EP is acting as a veto point,
unraveling classic compromises reached between the Commission and the Council of Ministers.
KEY WORDS: Globalization, Corporate Governance, EU integration, European
Parliament, Co-decision procedure, Diversity of Capitalisms
1. INTRODUCTION
The question of how globalization affects domestic politics has spurred a field of
inquiry on systemic convergence (Albert 1991; Berger and Dore 1996; Vogel 1996;
Boyer and Hollingsworth 1997; Crouch and Streeck 1997; Kitschelt et al. 1999; Dore
2000; Scharpf and Schmidt 2000; Hall and Soskice 2001; Streeck and Yamamura 2001
and 2003; Schmidt 2002; and Menz 2003). The bulk of this literature on globalization
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and domestic institutions continues to focus on individual states. Many studies, for
example, continue to treat all OECD countries as independent units, where in fact
nineteen out of thirty states (as of May 2004) are EU members that have largely pooled
their economic sovereignty. While scholars in the field of international political economy
acknowledge the primacy of both globalization and the European Union (EU) in national
political economy, they have largely ignored the interactions between globalization and
the EU. Despite a nascent literature (Rhodes and Van Apeldoorn 1997; Scharpf 1999;
Damro 2001; Weber 2001; and Hay and Rosamond 2002),1 the role of the European
Union as a mediator of globalization remains largely unexamined. Meanwhile, the
converse role of the European Union as an increasingly key actor in shaping the rules of
globalization is also neglected.
This article raises three questions that lie at the core of EU interactions with
forces of globalization. What is the impact of the EU on the convergence or divergence of
various types of capitalism under financial globalization? How does the EU solve its core
internal tension between the search for competitiveness and the search for broad-based
legitimacy? What is the impact of post-Maastricht institutional changes on the process of
EU mediation of globalization? I focus on a single crucial case: the fifteen-year battle
over the EU takeover directive from 1989 to 2003. The takeover directive serves as a
controlled experiment for the process of EU mediation of financial globalization because
of four features. As a key plank in the EU financial strategy and Lisbon strategy to make
the EU the most competitive area in the world, it matters enormously. It is also a case of
EU-level governance. It involves high stakes for both global investors and traditional
domestic actors such as labor and management. Finally, it is a protracted battle over a
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long period of fifteen years, during which the impact of EU institutional changes can be
tested and the case be broken down in a number of small sub-cases.
The rationale behind the takeover directive is simple. By harmonizing fifteen sets
of national regulations and facilitating takeovers as a whole, the directive aims at
removing obstacles to the free flow of capital. Thus, the takeover directive aims at killing
two birds with one stone. On the one hand, it is about advancing the EU’s common
(capital) market and leveling the playing field between EU countries. On the other hand,
it is about shifting the existing status quo from a restrictive takeover regime (in almost all
countries but the UK) to a more market-friendly regime that ‘creates substantial benefits
for shareholders’. This in turn ‘could lead to higher firm valuations and lower costs of
capital for firms’ (McCahery et al. 2003: ii). It is the quintessential investor-friendly type
of reform, a reform that should serve to attract more equity portfolio inflows as well as
foreign direct investment (FDI) into the EU. More capital inflows means easier corporate
funding and lower cost of capital overall. The Commission precisely calculated that a
single financial market would lower the overall cost of capital of EU companies by 0.5
per cent and add 1.1 per cent to overall EU GDP over the next decade.2 A third partly
veiled goal was to create a EU-wide financial market that could compete with the US
market and thus empower the EU to challenge the US in the game of international rule
making.
Between 1989 and 2003, the takeover directive went through one of the most
amazing institutional roller-coasters ever experienced in the European Union’s history.
For years, the Commission tried to introduce a directive that would unify takeover rules
across the EU’s internal market. Key states in the Council of Ministers, however,
Competitive Supranationalism
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repeatedly blocked the Commission’s efforts. In particularly, the UK felt that EU
regulations would unnecessarily complicate the remarkably efficient voluntary code of
the London City. As for Germany, it opposed the introduction of a culture of hostile
takeovers into consensual German capitalism. The initial logjam was broken in 1999,
when Germany became an active supporter of the takeover directive, partly as a way to
mitigate and codify the unavoidable clash of capitalisms. During the ensuing process of
the post-Amsterdam co-decision procedure, the EP introduced major amendments and
eventually voted down the final compromise draft in a climactic vote on June 4, 2001.
After further episodes, the Council reached a new and weakened compromise in
November 2003, by making key features of the directive merely optional. The European
Parliament passed the watered-down directive on December 16, 2003.
The takeover directive is significant, as it challenges existing theoretical
paradigms on the European Union to explain the process of EU mediation of
globalization. How do we account for the consistent and revived push behind the
directive over fifteen years on the one hand and the political and institutional sources of
successful opposition to the directive after 1999 on the other? A neo-functionalist theory
(Haas 1961 and Lindberg 1963) may shed light on the ‘natural’ spill-over process from
the internal market to the euro to the takeover directive. It emphasizes the crucial role of
the European Commission (and Frederik Bolkenstein specifically) as the agent driving
the Directive. Yet, it fails to explain the timing of the revival in 1999, when the Directive
should have flown naturally from Maastricht. Furthermore, a neo-functionalist
framework cannot satisfactorily explain the clash between the EP and the Commission on
an issue that would have furthered their common goal of institution building.
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Arguably, an inter-governmental lens fares better. Inter-governmentalists such as
Moravcsik (1998) emphasize the central role of large governments trying to pursue their
national interest in the forum of the council of ministers. The council was indeed the
crucial bottleneck for the Directive from 1992 to 2000 and again in 2002-2003. Yet, the
flip flop of key countries, such as Germany, Sweden, and the UK, introduces a major
problem in an inter-governmental approach: state preferences appear unclear and
unsettled, tangled in a complex domestic political battlefield. Furthermore, an
intergovernmental approach does not provide leverage over the major clash between the
EU Commission and the EP, a clash that proved to be the crucial step in the story.
Lastly, an institutional approach, in particular the focus on veto players operating
under rules of the game (Tsebelis 2002), goes further in explaining the sequence and
outcome of the Takeover Bill. However, Tsebelis and Garret’s (1996) legislative model
fails to anticipate the willingness of the EP to turn down a bargain emerging from the
conciliation committee in its third reading, despite a significant move toward the EP’s
ideal point. The Takeover Bill seems to reveal a situation where the EP increased its
power under the new (post-Amsterdam) co-decision rule. More importantly, the Takeover
battle underlines the necessity to study legislative politics with at least two dimensions.
Views on convergence of capitalist systems under globalization seemed as important as
views on furthering EU integration in the EP’s vote.
This article presents an alternative theoretical framework of competitive
supranationalism under globalization and under codecision procedures. Unlike many
other issue-areas, globalization divides the EU’s supranational actors. In particular, as
they respond to financial globalization, the Commission and the EP find themselves in
Competitive Supranationalism
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different positions and in competition with each other. The EU Commission tends to give
a voice to global investors, due to its own focus on competitiveness and efficiency. On
economic issues, the EP tends to reflect the views of large national interest groups,
particularly labor and management. The battle over the EU takeover started out as a
classic vertical clash of levels, whereby the Commission struggled against the states (in
the Council) over sovereignty and regulatory power. After 1999, the thrust of the
takeover battle moved to a new-age horizontal clash of visions between the Commission
and the EP. In the context of post-Maastricht and Amsterdam co-decision procedures, the
EP’s voice greatly increased and shifted the status quo. The June 4, 2001 No-vote in the
EP was unprecedented and will probably be seen as a historical turning point in the
process of EU mediation of globalization.
Through the case of the EU takeover directive, this paper argues that the gradual
rise in power of the EP relative to the Commission and to the Council since 1994 has
resulted in a complete change of ways in which the EU mediates forces of globalization.
While the Commission made the choice in the 1980s to advance EU integration through
pro-globalization policies, the EP has since the 1990s pursued higher EU legitimacy
through attempts to regulate globalization. Other cases in point include the EP role in the
regulation of genetically modified organisms and the EP positions on airline data
transfers. In sum, increased pressure for change coming from the international sphere has
been recently matched by an institutional increase in policy stability. Section II below
presents a theoretical framework of competitive supranationalism under globalization.
Section III discusses the analytical narrative of the takeover directive in five rounds,
exposing the emerging rift between the European Commission and the European
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Parliament. Section IV concludes with the implications of this case study on new ways of
understanding the capability of the EU in shaping as well as mediating financial
globalization.
2. THEORETICAL FRAMEWORK: COMPETITIVE SUPRANATIONALISM
In its heydays, the European Commission had been successful in linking EU
integration with pro-globalization reforms such as financial liberalization and
deregulation (Sandholz and Zysman 1989; and Jabko 1999). The Commission and the EP
mostly supported each other in the common cause of EU integration. However, this
traditional model of a pro-globalization EU mediation process has changed since the mid
1990s due to two factors: new cleavages between the EU Commission and the EP in
advancing globalization, and a shift of power from the Commission to the EP due to the
codecision procedure.
The traditional cleavage of EU politics has been a vertical one: the degree of
sovereignty transfer to EU institutions. Key EU political debates have centered upon the
degree of deepening of EU integration and the selection and sequencing of issue-areas in
the movement toward greater EU governance. Both neofunctionalist theorists and
intergovernmentalists tend to assume similar preference functions. States tried to
minimize the transfer of sovereignty to EU institutions while maximizing the benefits of
cooperation. For their part, the EU commission and the EP tried to maximize the process
of sovereignty transfer and EU integration. The EP and the Commission are often seen as
mutually supportive in their common endeavor.
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Following the full liberalization of capital flows in the EU in 1990 and the
completion of the EU internal market in 1992, however, the EU became directly
enmeshed in the process of global financial integration. The integration of national
financial markets into a powerful global market and the explosion in trans-border
financial transactions presents a direct challenge to non-liberal capitalist systems.
International capital flows soared during the 1990s, pushing world financial markets to an
unprecedented level of financial integration. Net cross-border transactions in bonds and
equities alone among the G-7 countries (excluding the UK) increased from under 10 per
cent of GDP in 1980 to 140 percent in 1995. The volume of daily foreign exchange
transactions increased from $590 billion in 1989 to $1.5 trillion in 1998 and is estimated
to be above $2 trillion by the early 2000s (Simmons 2001).
In particular, equity inflows represent one of the fastest growing components of
global capital flows. They also constitute the most potent agent for change within nonliberal economic systems such as France and Germany. Equity flows are primarily driven
by US, and, to a second degree, British, pension funds and other institutional investors.
During the 1990s, as the funds managed by British and American funds grew, these
investors sought to diversify their portfolios and increase their overseas investments.
Between 1990 and 1998 alone, American investments in foreign shares grew from $197.3
million to $1.4 trillion (Ahmadjian and Robbins 2002). The share of foreign (mostly US
and UK) shareholders in France and Germany rose from around 15 per cent to nearly 40
per cent in the 1990s alone. As the presence of foreign investors in domestic non-liberal
countries increases, their voice rises and their threat of exit grows more potent. Domestic
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political leaders are left to navigate between a potential increase in the cost of capital for
domestic industry and the wrath of domestic constituencies.
This transformation introduced a new horizontal cleavage within EU politics: the
debate between efficiency and participation/equity. This new cleavage splits the EPCommission coalitions, as the two supranational partners have different preferences.
With its long-term time frame, the Commission follows the twin goals of integration and
economic competitiveness. In a globalized world, it realized that economic
competitiveness requires financial competitiveness. The Commission thus embraces
reforms that favor the free flow of capital and the attractiveness of the EU to foreign
capital. In contrast, the EP’s ideal point (or median preference) is more heavily weighted
toward the interests of large national interest groups, such as labor and management. The
issue of financial globalization tends to pull together continental labor and management
interest groups, thus creating a major counter point to the Commission’s preferences.
A second key institutional variable in the clash of titans within EU supranational
institutions is the increasing power of the EP through the codecision procedure. The
procedure was introduced in the Maastricht treaty of 1992 (implemented in 1993) and
expanded and strengthened in the Amsterdam treaty (implemented May 1999). It bestows
a veto power to the EP on an increasing percentage of EU legislation, including internal
market legislation. Much has recently been written on the significance of the codecision
procedure (Tsebelis 1994; Tsebelis and Garrett 1996; Hix 1999; Rittberger 2000; Kreppel
2002; Judge and Earnshaw 2003; Shackleton and Raunio 2003; Burns 2004). The larger
debate raises the question whether codecision has radically altered the balance of power
in favor of the EP. Based on the case of novel foods regulation, Burns (2004) emphasizes
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the Commission’s enduring prerogatives and influence under codecision procedures.
Tsebelis (1994) depicts the EP under the pre-Maastricht cooperation rule as a ‘conditional
agenda-setter’ and then with Garrett (1996) make a highly controversial argument that the
Maastricht co-decision rule has actually weakened the power of the EP to influence the
outcome, since the end game allowed the Council to make a constraining take-it or leaveit offer to the EP. In particular, as pointed by Rittberger (2000), the Tsebelis-Garrett
model fails to account for cases where the EP chooses to turn down the final legislative
compromise. This is precisely the case of the takeover directive. It reveals the true power
of the EP through its capacity to unravel compromises reached between the Commission
and the Council of Ministers.
Competitive supranationalism refers the new cleavage between the EP and the
Commission in response to financial globalization (Table 1). The Commission continues
to act as first mover and as the initiator of new EU legislation. It continues to face a
difficult negotiation with the Council of Ministers over the degree of sovereignty transfer.
The coalition of states in the council varies according to the vagaries of domestic politics
in major countries. What is new in the decision-making process, however, is the third and
last step where the compromise reached between the Commission and the Council can
founder in the EP. In turn, whether the EP voice is expressed through an actual negative
vote or, ex ante, through the threat of a negative vote, the EP’s divergence in matters
related to globalization is forcing the Commission and the Council to include other
interest groups. The clash between the EP and the Commission over globalization
represents an underlying clash of interests between investors and urban voters on one
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hand and labor and management of the other hand (see Appendix 1 for details of
coalitions on both sides of the divide).
Table 1. Two-dimensional Cleavages in the EU in Responses to Financial
Globalization
Horizontal Cleavage
Vertical Cleavage
Sovereignist (states)
Federalist (EP,
Commission)
Efficiency / Output
Legitimacy (Commission)
Participation/Process
Legitimacy (EP)
Competitive adaptation;
pro-globalization change;
EU as catalyst only
Cushioning of globalization
through national regulations
Adaptation/facilitation
(Jean Monnet Method)
 liberalization through
EU level
Managing globalization
through active mediation
and selection at EP level
3. ANALYTICAL NARRATIVE: THE TAKEOVER DIRECTIVE BATTLE AND
COMPETITIVE SUPRANATIONALISM WITHIN THE EU
The takeover directive aims at promoting a ‘common framework for cross-border
mergers and acquisitions and facilitating corporate restructuring’ (Beffa, Langenlach, and
Touffut 2004: 4). In particular, it was conceived as a way to give equal treatment to all
shareholders and protect minority shareholders (including US and UK pension funds)
who are often kept in the dark by managers during takeover bids in continental Europe.
By 1999, the takeover directive became part of a coherent bundle of 42 reforms, known
as Financial Services Action Plan, pushed by the Commission to create a unified EU
financial market by 2005. These rules were expected to increase the flow of capital across
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EU borders and to make it easier and cheaper to raise money. The plan won the applause
of financial investors, both European and American. In March 2000, at the Lisbon EU
council, EU leaders put one more lofty goal on top of this multi-level effort, by
integrating it in their declared aim of making Europe ‘the world’s most competitive
economy by 2010’. They specifically referred to the takeover directive as one of the
crucial components in this plan (McCahery et al. 2003).
The political battles about the Directive unfolded along four fronts. First, Article 5
enshrines the protection of minority shareholders and requires bidders to make an equal
offer to all shareholders. The aim of the article is to prevent speculative attacks and
insider deals (Beffa, Langenlach, and Touffut 2004: 8). This article survived in the final
bill. Second, a key component of the Directive, a controversial Article 9 requires the
board of directors to remain neutral and prohibits defensive measures designed to
frustrate bids (thus moving toward a more Anglo-Saxon system). This article led to fierce
debates, particularly after December 2000, when the EP, under the leadership of its
rapporteur, Klaus Lehne (of CDU, Germany) introduced amendments on the topic.
Debates ensued over the possibility of ‘poison pills’. Lehne pushed for the right of
defenders to issue shares to special ‘white knights’ and highlighted two key concerns.
First, German companies would be defenseless against US companies (where Delaware
rules give a degree of defensive rights to managers). Second, the EU would still be a level
playing field, given the endurance of ‘golden shares’, shares that allow governments to
prevent the sale of companies they consider strategically important. Lehne likewise
emphasized the case of EDF (Electricité de France), a state-owned French utility
company that is able to take over utilities in Spain and Italy, while being protected from
Competitive Supranationalism
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takeovers itself. The final takeover outcome makes the entire Article 9 optional, thereby
allowing directors to frustrate hostile bids through poison bills or multiple voting shares
defenses without shareholder approval.
Third, Article 11 aims at banning multiple voting rights and imposing other
restrictions on voting rights, although a decision was made early on not to ban the double
share system used in France, where shares held for over two years carry double voting
rights. There were intense debates about this article and, as for Article 9, the final
outcome made it optional. Finally, a major bone of contention related to workers’ rights.
In December 2000, the EP added provisions requiring consultations with a company’s
workers before a takeover offer is made,. This did not fly. The 2001 compromise draft
would have required bidding company to detail in its prospectus the impact of its offer on
employment working conditions and the location of operation. Employees’ views would
then have been attached to the recommendation presented by the board to shareholders.3
This proved insufficient for most national labor unions and for the EU-wide labor
federation (ETUC). They argued for full worker consultation in the process. The final
2003 outcome includes significant right of information for workers. The issue, however,
ended up splitting the grand EP coalition between PSE and EPP in December 2003. The
Socialists argued that information rights were not sufficient and voted against the final
bill.4
Debates over these four issues revealed an increasing rift between the
Commission and the EP between 1989 and 2003, a period which can be divided into five
rounds for analytical purpose. In round one, the battle started out as a classic vertical
contest between EU institutions and states that are unwilling to transfer sovereignty. In
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round two, the growing presence of foreign investors in the EU scene had shifted the
balance toward the Commission’s preferences by the mid 1990s. Then, in round three, the
Commission solved the vertical dilemma and found a compromise with states, only to
discover a novel front: a horizontal split with the EP. The directive nearly fell victim to
this supranational battle of titans. In Round four, the Commission revived the directive
while addressing some of the EP’s concerns, only to full victim to the opposition of the
Council. In the last round, the Council took the initiative and found a new compromise
with the EP, albeit a much weaker one than initially foreseen and one that was fiercely
opposed by the Commission. The Commission appeared as the key coordinator
throughout the five rounds, but the EP became the ultimate veto point.
3.1 Round 1: Initial Commission Blueprint and Defeat in the Council of Ministers,
1989-1994
Building on the great EU regulatory move of the Single European Act (1986) in
the late 1980s, the European Commission first drafted a takeover directive in 1989 (OJC
64, 14/3/1989). The initial directive was a detailed document specifying all required
terms of a takeover bid. Interestingly, this first and crucial draft originated from the
Commission and preceded the Maastricht Treaty and the euro. It came on the heels of the
package on the removal of capital controls in all EC countries (achieved in 1990) and
other financial deregulatory moves. The rough battle around De Benedetti’s hostile bid
on Société Generale de Belgique provided an incentive for the Commission to act. It
seemed clear to the Commission that the Europe needed some kind of ‘Geneva
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convention’ to avoid real warfare among European companies (interview with senior
Commission official, 02/12/2003).
Most member states opposed this draft directive as too detailed and an
unwarranted intrusion into their domestic policy (McCahery et al. 2003). At the
Edinburgh EU Council meeting of December 1992, the Commission announced that it
would revise the proposed directive. It received overall albeit tepid approval to move in
this direction. This position was only reconfirmed at the Essen Council meeting of
December 1994, without further progress. Throughout these five years, the British
opposition was particularly strong. Britain feared the expansion of EU power into an area
of British strength and suggested that the EU simply adopt the UK Takeover Code.5
Germany and the Netherlands were strongly opposed to a fundamental shift in their
capitalist systems. Thus, the EU’s elite bureaucracy, the Commission, out of a normative
conversion to global standards on the one hand and calculations that it would both serve
EU competitiveness and EU integration on the other, pushed the initial draft of the
Directive. Most states, however, did not feel the incentives to shift the status quo. The
level of foreign ownership in stock markets such as Germany, France, Spain, or Italy,
remained relatively low until 1995 (10-15 per cent) and the pressures of equity investors
was not yet keenly felt.
3.2 Round 2: From the Revised Commission Blueprint to Agreement in the Council,
1996-2000
In February 1996, the Commission brought the takeover directive back on top of
the EU legislative agenda when it proposed a new and simplified version that was based
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on the British City Code on Takeovers and Mergers.6 The proposal was less detailed so as
to obtain British support. British support was slow to come, partly because of enduring
suspicions about the Commission, and partly because of conflicts with its own regulatory
system. The UK expressed concerns that the Directive might increase the legal rights of
those involved in takeover bids. The UK Takeover Panel, in a fight for its own survival,
argued that takeovers might end up ‘snarled in legal wrangling’ and that the speed and
efficiency of the code would be eroded.7 Around 1998, however, the lineup of states was
shifting. The UK could count on Ireland, Netherlands, and Sweden as clear allies
opposing the Directive, but that would be insufficient to defeat a qualified majority vote.
In mid-1998, Austria (as the EU presidency) gave priority to the Directive with tepid
support from Germany. On their part, Belgium, France, Spain, and Italy formed a
coalition pushing for changes in the takeover directive, particularly pushing for priority
regulation of takeovers in the country of listing.8
In April 1999, Germany (hosting the presidency of the EU) worked on building a
compromise with the UK, in an attempt to avoid marginalizing the country where over
half of EU takeovers were taking place.9 In June 1999, the UK indicated that it was ready
to accept the compromise. The German leadership, under Third Way leader Schroeder
had borne fruits. However, on June 21, 1999, the takeover directive hit an unexpected
rock: Gibraltar. Instead of approving the directive, the council of ministers had to shelve
the proposal. Indeed, Spain became worried that Gibraltar might open its own backdoor
takeover regulatory authority. This peculiar and puny obstacle ended up blocking the
progress of the takeover directive for a full year.
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Meanwhile, Germany suddenly moved from being a mild supporter of the
Directive to become a strong supporter. The move was caused by the shock of the largest
ever foreign hostile takeover involving Vodafone AirTouch’s attempt to take over
Mannesmann. Germany expressed worry about this unmitigated clash of capitalisms and
hoped that the takeover directive could remedy this. 10 Mario Monti, the EU Commission
for Competition also waded in, promising that the EU authorities would fully review and
scrutinize the Vodafone deal. He also added support for an urgent takeover directive.
By 1999, foreign investors held 40 per cent of the French stock market and nearly
20 per cent of the German stock market. Flows of capital (except for the Vodafone deal)
seemed to favor France over Germany. France had shifted to become a defender of proinvestor regulations and Germany was beginning to shift as well. The Commission saw
added urgency for its project. On June 19, the EU takeover directive was finally passed
unanimously by the council of ministers on agriculture (an oddity due to the absence of
necessary discussions and to the concern for speed). At this point, there seemed to be a
convergence between the Commission and all state leaders on the urgent need for a
regulation that would both mitigate the British-German clash of capitalisms and
encourage the flow of capital into the EU. By 2000, this clearly appeared to be related to
EU competitiveness and long-term growth.
3.3 Round 3: EP Counter-Voice and Defeat of the Directive, 2001
The Directive entered the next step in the co-decision procedure, the review by
the EP. The EP relies heavily on the institution of a rapporteur in its proceedings.
Rapporteurs guide the legislation through and suggest amendments as part of a final
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report that serves as the key template for the final vote in the plenary.11 In this case, the
rapporteur was Klaus-Einer Lehne, a German Christian democrat (CDU). Under his
leadership, a long list of concerns emerged from committee discussions in the EP. As
noted above, the concerns related to the lack of defensive measures allowed to managers,
to workers’ rights, and to the jurisdictional powers over takeovers. On December 12,
2000, the EP confirmed most of these amendments in a general vote. This vote triggered
the last step of the co-decision procedure: conciliation. A conciliation committee was
created with 15 MEPs and 15 state ministers with the aim of reaching a compromise or
Joint Text.
The ideal point of the state council and the Commission proved far from the ideal
point of the EP. Indeed, the EP was far more receptive to the positions of key interest
groups such as labor and management than the Commission and the state council. Thanks
to its increased powers since Maastricht, the EP could force the text back to the drawing
board by passing amendments. The EP move drew angry critiques from the Commission
(Mario Monti and Fritz Bolkenstein) as well as from Baron Lamfalussy who argued that
quicker legislative mechanisms had to be designed in the ‘instantaneous internet age’.12
An irony in the process was the fact that the German CDU (pro-business) led the
opposition against a draft spearheaded by German Social Democrat leader Schroeder.
In early April 2001, the formal process of conciliation was launched after difficult
meetings between the Commission and Klaus-Einer Lehne. The process gave a deadline
of six weeks for the state council and the EP to reach a compromise. Four weeks into the
process, Germany announced that it was backing out of the agreement on the takeover
directive.13 It was revealed that the German government faced strong lobbying pressures
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from both large corporations and labor unions. It probably also felt politically vulnerable
in a battle where it had let the opposition occupy its usual political ground. The German
move put Sweden, the holder of the EU presidency, in a bind. While trying to broker a
compromise with the EP, Sweden had to worry for a potential crippling back-door
agreement between Germany and the UK. Spain began to express concerns that the
Directive would leave its companies undefended in the face of US threats.14 German
counter-voices also arose, led by young defenders of the new equity culture and by
Jurgen Schrempp, the (former) paradigm of German shareholder value.15
Meanwhile, the Commission forged ahead, unveiling new components of its plan
for a single European financial markets and declaring that the Takeover Bill and others
would soon be approved.16 The Commission also promised to push its fights against
golden shares and to investigate Volkswagen and seven other German companies that
have discriminatory statutes against investors. A compromise deal was reached at the last
hour. It involved EU states, the EP representatives, and the Commission despite its lack
of involvement in this round in the process. The key component of the compromise was
to introduce a five-year transition period before removing managerial defenses against
investors. The text itself was closer to the ideal point of the Commission and the state
council. Other minor changes related to employee rights. On the EP side, the key leader
and signatory of the deal with Klaus Lehne, the same MEP who ended up voting no on
this deal in the EP vote of June 4, 2001. Lehne did say that he was dissatisfied with the
resulting compromise.17 On the council’s side, the vote was 14-1, with Germany
dissenting from the deal. Fresh from this vote, Germany started lobbying all its MEPs to
vote against the draft.
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The battle reached its climax on July 4, 2001, when the EP took its final vote on
the joint text approved by the conciliation committee. This vote became one of the most
peculiar votes in the EP’s history. All EP party groups (except the ELDR Liberal
Democrats and the Non-attached group) broke down within their middle. On the yes side,
the coalition included Benelux liberal democrats, conservatives from the UK, France,
Spain, and Italy; ‘modern’ socialists from France, Italy, and the UK; sovereignists, and
even one Italian communist MEP. On the no side, all German MEPs (except one CDU
member) were joined by most Austrian delegates, as well as key groups of Spanish
socialists and Italian, Greek, and Dutch Christian Democrats. The most pro-EU French
party (the UDF) ended up voting with its pro-EU German friends against the Directive,
while anti-EU sovereignists like Charles Pasqua joined socialist EU-proponents like
Michel Rocard. Adding to the drama of the moment, the final vote was an unprecedented
tie (273-273), and the EP President (who did not vote) declared that the Directive had
passed, only to discover an EP rule that a tie meant a failure to pass. The result hung in
the balance as one voting MEP could not be identified. In the end, the Directive failed on
that fourth of July. Tables 2 analyzes the big voting blocs on each side of the divide.
Competitive Supranationalism
21
Table 2. Votes for and against the EU takeover directive
FOR
Votes
1
2
Party Name
Country
34
Conservative and Unionist Party
UK
26
Labor Party
UK
3
20
Partido Popular
Spain
4
16
French Traditional Right (RPR, DL, UDF)
France
5
16
Parti Socialiste + MRG/PRG
France
6
14
Liberal Democrats BENELUX
Belgium, Netherlands, Lux
7
13
Italian Nationalists and Independents
Italy
8
12
Democratici di Sinistra (PSE)
Italy
9
10
Liberal Democrats
UK
10
8
Partido Socialista
Portugal
11
7
French Sovereignists (RPF-Pasqua,MPF)
France
12
6
Chasse-Peche
France
13
Total
Explained
4
Venstre (Liberal-Democratic)
Denmark
186 (68%)
AGAINST
Votes
1
66
2
46
Continental Christian Democrats: CDU-CSU +
OVP + CDA
Germany, Austria, Netherlands
Continental Social Democrats: SPD + SPO +
Arbeid
Germany, Austria, Netherlands
3
29
Forza Italia + PPE Allies
Italy
4
20
Spain
5
Total
Explained
18
Partido Socialista Obrero Español
French Unreformed Left (PCF, Greens,
dissidents)
France
179(66%)
Source: European Parliament, Minutes of the Proceedings : Results of roll-call votes.
Author’s identification of parties and countries and calculations.
The yes votes represented a collection of small and diverse components: various
liberal democrats, conservatives from the UK, France, and Spain, and social democrats
from France, Italy, and the UK, together with odd nationalists. The no votes were from a
few large coherent blocks, an alliance between Christian Democrats from Germany,
Austria, the Netherlands, and Italy, and Social Democrats from Germany, Austria, the
Netherlands, and Spain (see Appendix 1 for details of coalitions). The ideal point of the
Competitive Supranationalism
22
EP remained different from that of the state council and Commission. The EP proved to
be a full veto player and full agenda-setter under the revamped post-Amsterdam rules.
3.4 Round 4: Revival and Defeat in the Council, 2002-2003
The Commission absorbed the defeat. Yet, convinced that the takeover directive
was badly needed for EU’s competitiveness and concerned that it was a key plank of its
overall master plan for an effective EU financial market, the Commission revived it right
away in July 2001. The Commission appointed a nine-member High Level Group of
Company Experts, led by an academic, Jaap Winter, to review all issues raised during
negotiations with the EP and in the EU council. The Group of Experts produced a report
in February 2002 that actually strengthened the takeover directive and maintained the
controversial Article 9. In particular, the new draft banned multiple voting rights—a
practice common in Sweden18—and introduced the notion of breakthrough, that is, the
possibility to override all oppositions once a bidder controlled 70 per cent of the shares.19
Investors applauded the new proposals. But neither the Council nor the EP were amused.
Fresh opposition appeared from the leading business family in Sweden, the
Wallenberg family. This major lobbying move forced the Swedish government to shift its
stance to opposition. As for Germany, it introduced in January 2002, its own takeover
code that had the merit to clarify unclear elements but also enshrined managerial defense
tools. In February 2003, the Directive seemed to gain a boost, when the UK, Germany,
and France produced an agreement that they should push overall EU reforms and support
Commission’s efforts to improve European competitiveness. But there was no specific
mention of the takeover directive. In the end, in May 2003, the Council decided to shelve
Competitive Supranationalism
23
the directive, when a backroom deal between Germany and the UK sealed UK opposition
on the directive in exchange for German opposition for the directive on temporary
workers’ rights. Another deal involving France with an exchange on Agriculture policy
seemed to provide more back up for Germany, in addition to potential support from
Austria and Sweden. At this stage, the takeover directive died again in the hands of oldstyle EU council log-rolling, although the looming threat of another EP vote may have
decreased the value of a positive move for countries like the UK and France. The process
further proved how difficult EU mediation of global finance had become under current
institutional rules. Meanwhile, reports indicated that capital inflows (both equity and
FDI) stagnated in the EU since 2000 and that the overall EU competitiveness was
suffering.
3.5 Round 5: Council-EP Weak Final Compromise and Commission Wrath
In the last round, the three supranational protagonists, the Commission, the
Council, and the EP reached the only possible compromise that could save the takeover
directive. The final outcome is much closer to the EP’s ideal point than to the
Commission’s, leading the Commission to consider a complete withdrawal of the
proposal before the final vote. In the end, concern about its lack of democratic legitimacy
and the strength of the Council-EP coalition led the Commission to accept the outcome.
In the words of a senior Commission official, ‘if the Council and the EP have a strong
majority in favor, it is very hard for the Commission to go against it. Is it democratic for
the Commission to go against the people?’20
Competitive Supranationalism
24
In June 2003, the Greek presidency proposed to pass a symbolic takeover
directive by entirely removing the key articles, articles 9 and 11. Commissioner
Bolkenstein vetoed this proposal, saying ‘article 9 was non-negotiable’.21 By November
2003, under Italian leadership, the Council prepared a compromise that was acceptable to
the EP: making articles 9 and 11 simply optional. Despite strong Commission opposition,
US concerns about protectionism, and lobbying by foreign investors, EU states in the
Council voted 14-0 (with Spain abstaining) in favor of the watered-down compromise on
November 27. The potential veto of the EP and the looming EP elections of June 2004
proved decisive in shaping the final outcome. In the end, the EP approved the bill 321219 on December 16, 2003. Unlike the July 2001 vote, the EP vote was mostly among
party lines. Liberals (NDLR), Conservatives (EPP), and some nationalists (UEN) backed
the deal, while Socialists (PSE), Greens, and Unified Left (GUE) members voted against
the deal. Indeed, the emerging grand EP coalition of 2001 that had brought together
continental conservatives and socialists were divided over the issue of employee rights.
4. CONCLUSION
This paper has argued that the EU takeover directive provided a unique prism to
analyze the clash of capitalisms under globalized finance and the role of the EU as a
mediator of globalization. A Commission concerned about the long-term competitiveness
of the EU spearheaded the EU’s role as a mediator of financial globalization. By 1999,
the coalition of foreign investors, liberal capitalists (UK and Nordic countries) and
Commission had led the revival of the directive. This coalition was opposed by a
continental labor-management coalition that heavily dominated the ideal point of the EP.
Competitive Supranationalism
25
The clash of capitalisms under globalization became a clash between Commission and
EP, an unusual conflict between two pro-integration actors known for back-scratching
deals.
I call this emerging horizontal split between supranational actors within the EU on
issues related to globalization competitive supranationalism. The expanding codecision
procedure has given the EP and the large interest groups that it represents the power to
oppose pro-globalization compromises reached between the Commission and the Council
of Ministers. The resulting clash of titans has changed the trajectory of the EU’s response
to globalization. On the takeover directive, the role of the rapporteur in the EP (Klaus
Lehne) gained a prominence equal to that of the Commissioner in charge of the file. In
addition to the case of the takeover directive, the EP has also expressed its divergent
interests and power on issues such as the regulation of genetically-modified organisms
(GMOs, 1996-2003), the liberalization of harbor services (November 2003), and the
transfer of air passenger data (April 2004). Since the late 1990s, the Commission has thus
proved less able to move forward on its vast plan for a unified EU financial market and
its pro-globalization competitiveness agenda. In the short-term, the EU has proved more
democratic but unable to deal with the build-up of external financial pressures. The
incentives for change coming from global finance are offset by a rise in the number of
veto players in the EU legislative process, particularly by the rise of the EP as a fullfledged veto player and agenda-setter.
Competitive Supranationalism
26
Appendix 1. Underlying Coalition Lineup in the Battle over the takeover directive
EU level Groups
(and global level)
Net National
Preferences (based
on 2001 EP vote)
Sub-State Level
PRO
• EU Commission (Bolkenstein)
• ECJ (ruling on ‘Golden Shares’)**
• Baron Lamfalussy
• Investor Groups:
- EUROFI: Paris-based
pressure group for single
financial market
- Federation of European
Securities Exchanges
- US Pension Funds (CalPERS)
• Think Tanks:
- CEPS (Center for European
Policy Studies)
Denmark, Finland, Sweden22
France (divided)
Luxembourg
Portugal
UK, Ireland (including Pat Cox)
• Investor Groups:
- UK: FT, Association of
British Insurers (Montagnon)
- Germany: young equity
activists, Jurgen Schrempp
(Daimler Chrysler) +
Deutsche Bank Research
(Schroder)
• Management:
- UK
- FR: AFEP (Association
Francaise des Entreprises
Privees) (divided position)
- Ger: Siemens (Baumann)
• Government Bodies:
- UK Takeover Panel (hesitations)
CON
• European Parliament
• Labor: European Trade
Union Confederation
(ETUC)
Belgium, Netherlands
Germany, Austria23
Greece
Spain (divided)
Italy (divided)
• Management:
- Volkswagen, BASF
- Wallerstein (Sweden)
- French leaders
(Beffa, Peyrelevade,
mixed position)
• Labor:
- Mining, Chemical,
and Energy Workers
Union (Germany)
• Sub-state governments:
- Lower Saxony (VW)
Competitive Supranationalism
27
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1
33
Multi-level governance theorists Hooghe and Marks (2000), for example, demonstrate
that all economic spheres have undergone a massive transfer of sovereignty from the
national to the EU level between 1968 and 2000.
2
Financial Times, December 4, 2002, p.11. This figure relates to the overall impact of
creating a unified financial market. The takeover directive is a key component of this
program, but not the only one. See next paragraph.
3
Argument presented by the Swedish Trade Minister and the Swedish main union leader.
Dombey, Daniel and Williamson, Hugh (2001) ‘Berlin glee greets demise of EU takeover
directive’, Financial Times, 6 July.
4
Europarl Newsreport (2003) ‘MEPS back compromise on takeovers’, 27 Nov.
5
Interview with a senior Commission official on December 2, 2003.
6
Europarl Newsreport (2003) ‘MEPS back compromise on takeovers’, 27 Nov.
7
Financial Times (1998) ‘Move to dilute EU takeover rules: Brussels directive UK seeks
to continue with non-statutory system’, Financial Times, 28 Sept.
8
Financial Times (1998) ‘Discord over Brussels’ takeover directive’, Financial Times, 4
Oct.
9
Financial Times (1999) ‘EU aims to push through takeover harmony rules: German
compromise may appease UK and end 10-year deadlock’, Financial Times, 12 April.
10
Financial Times, November 23, 1999
11
Dombey, Daniel and Mann, Michael. (2002) ‘The European parliament is often
distracted by world affairs but has a critical legislative role’, Financial Times, 10 April.
12
Hargreaves, Deborah (2000) ‘European parliament backs measures that may end
hostile takeovers in EU’, Financial Times, 14 Dec.
13
Hargreaves, Deborah (2001) ‘Germany backs out of takeover accord: Change of heart
could endanger Europe’s industrial integration’, Financial Times, 2 May.
14
Betts, Paul and Hargreaves, Deborah (2001) ‘No way in: Germany’s rejection of a key
provision of an EU takeover code throws another obstacle in the way of dynamic crossborder capitalism in Europe’, Financial Times, 3 May.
15
ibid
16
Norman, Peter (2001) ‘MEPs to be sidelined over market reform’, Financial Times, 4
May.
17
Hargreaves, Deborah (2001) ‘Compromise found on takeover rules’, Financial Times,
7 June.
18
Ironically, the Commission introduced this feature to win the approval of the EP
Rapporteur, Klaus Lehne. Lehne had spoken in favor of a level playing field and in favor
of the removal of all obstacles used by countries other than Germany. Interview with two
Commission officials, December 2, 2003.
19
Interview with a senior Commission official, December 2, 2003.
20
Interview with two senior Commission officials, December 2, 2003.
21
Interview with a senior Commission official, December 2, 2003.
22
A particular factor in the case of Sweden seems to have been the role of the Swedish
presidency of the EU in January-June 2001.
Competitive Supranationalism
23
34
This clear rejection by Austrian MEPs took place in spite of the crucial role of Austria
as a champion of the Directive during its Presidency of the EU in July-December 1998.
TOTAL: 8457 WORDS (including notes, references, and appendix) (not counting
abstract)
DATE: June 14, 2004