Europe fantasises about an 'Airbus of everything!' Can it fly?

Mint

3 days ago

What do fertilisers, artificial intelligence, small cars, microchips, vaccines, nuclear plants, streaming platforms, cloud computing, satellites and green technology all have in common? Trick question, to which the answer is not that the European Union would like to regulate them to oblivion (though there may be that, too). What links them together is that they are all sectors some in Europe think could be transformed by One Neat Trick: to create an 'Airbus of". Merging lots of subscale European companies so they stopped competing against each other and took on Boeing instead worked wonders in the 1970s; from a standing start Airbus went on to outsell its jetmaking American rival. Could the same strategy be used to help Europe in the 2020s take on the likes of Google, Nvidia, SpaceX and Chinese carmakers? Politicians in Brussels and beyond want to believe. As the pilot of a wayward Airbus might exclaim: 'Brace for impact!"
No European industry confab is complete these days without someone invoking the 'Airbus of" trope. To many the age of such European champions feels overdue. Even as the EU's economies have come together in theory, it is notable how often their corporate leading lights have not. Europe's bigger countries (and many smaller ones) all have their own energy majors, telecoms firms, banks, carmakers and so on. Some blame this enduring fragmentation on the bloc's incomplete single market, which means that doing business across EU borders is still hard. Others focus on regulation, notably the club's antitrust rules that stymie mergers dreamed up by industrialists. Siemens and Alstom, two big engineering firms from Germany and France respectively, pitched the 'Airbus of rail", only for it to be kiboshed by Brussels officialdom in 2019. Either way Europe is now a corporate also-ran. The EU makes up one-sixth of the global economy, yet it does not have a single firm among the world's most valuable 20.
A few cross-border tie-ups have taken place: Peugeot of France and Fiat of Italy became Stellantis in 2021 (its biggest shareholder also owns a stake in the parent group of The Economist). Fighter jets and missiles are made through consortia of firms dotted across Europe. But politicians have more than mere mergers in mind. For Airbus is not just big, it is the apotheosis of corporations fulfilling a vision dreamed up by politicians (the firm is partly owned by the French, German and Spanish governments, though run mostly free of interference these days). Forget the jet age: Europe now needs gigafactories making microchips, green tech firms to help decarbonisation and so on. The bigger the business in Europe, the more politicians can lean on it to do their bidding. If a few new factories can serve as a backdrop for their ribbon-cutting photo-ops, so much the better. Le business, c'est moi!
Such industrial policy was once all but verboten in the EU, at least since its heyday in the age of disco music and stagflation five decades ago. Germans, abetted by Britain, imposed on the EU its largely hands-off approach to letting firms compete in the market; the French shelved their meddling instincts in exchange for farm subsidies. But dirigisme has been threatening a return for some years. The rise of Chinese industry—once a customer of German firms, now their rival—is evidence (to some) that state capitalism works. Brexit deprived the EU of a liberal voice. Covid-19, the war in Ukraine and two bouts of Trumpism have given credence to the French idea Europe needs to bolster its 'strategic autonomy" by being less reliant on globe-spanning supply chains. Who wants to rely on today's America for cloud computing, or jet fighters?
The effects of this statist turn can already be seen. Brussels once worked to deter governments from funding favoured enterprises. Now it allows giant exemptions for industries it deems 'strategic", such as batteries, microchips or hydrogen, which receive billions in cash from the EU and governments. Airbus and Thales of France and Leonardo of Italy, all partly state-owned, are lobbying for approval to merge their satellite-launch offerings ('the Airbus of satellites", featuring Airbus). The antitrust commissioner for a decade until November, Margrethe Vestager, argued that reducing competition in Europe would make it less likely its firms could successfully compete outside it. The views of her replacement, Teresa Ribera, are thus far hard to fathom.
The boss of Airbus itself, Guillaume Faury, says that 'When we work together, not against each other in Europe, we can achieve the scale needed to become global leaders." But what worked for Airbus in the age of vinyl may not be the right recipe for tech in the age of ChatGPT: making jets is unique in that fixed costs (to design planes that actually fly) are sky high and demand for products is stable for decades. That applies to relatively few other industries. Already a bunch of grands projets have gone awry. Northvolt, a battery maker backed in part by EU and German money ('the Airbus of batteries", inevitably), has gone bust despite raising $15bn. Gaia-X, an 'Airbus of cloud computing" has failed to offer a credible European alternative to Amazon and Microsoft.
Please fasten your seat belts
In an ideal world, European pols would love to shower companies with money, Chinese-style. Alas state coffers are empty. Bar Germany, big EU countries have massive debt piles and need to find cash to spend on defence, not industrial policy. The next best thing, to those of a dirigiste persuasion, is to discreetly provide a dollop of protection to a few state-favoured industries. The EU has imposed tariffs on Chinese electric vehicles, for example; a carbon tax will soon be levied on some goods imported into the EU. Building up European champions worthy of Europe-wide protection is the next logical step. Industry would cheer, its profits soaring as competition falls away. Consumers pay for this in the end—but long after today's batch of politicians have disembarked.
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