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IN ECONOMICS Super Mario and PEOPLE the Temple of Learning Jeremy Clift interviews Professor Mario Monti, the president of Italy’s Bocconi University “Jack Welch came face to face with his nemesis: and the “Monti M2,” eventually prompting the publication of official numbers. a decorous, scholarly, eminently proper Italian Said by the Economist to have a “formidable combination named Mario Monti.” of charm, intelligence, and an ability to be polite even when he is being stubborn,”Monti held two high-profile jobs in the T.R. Reid in “The United States of Europe: the New European Commission, first as Commissioner for the Internal Superpower and the End of American Supremacy.” Market, Financial Services, and Financial Integration during 1995–99 and then as Commissioner for Competition until ARIO Monti has something of the Harry late 2004, giving him a chance to put some of his economic Potter about him. Europe’s bespectacled for- theory into practice. mer antitrust tsar, who tamed Microsoft and He says that he has “always loved politics, but always hated humbled the head of one of America’s biggest party politics,” leading him to turn down a series of offers of Mmanufacturing corporations, has a gracious manner that cabinet jobs in Rome. But he did not hesitate when he was masks an earnest zeal. Dubbed “Super Mario” by colleagues offered the job at the European Commission because that was and the press, the neatly tailored Italian economics professor a way to be involved in politics without a party affiliation. He was transformed for many in Europe in 2001 into a hero for also believed that European integration was the key to mod- standing up to “Neutron” Jack Welch, the straight-talking ernizing both the Italian economy and many others in Europe. chairman of U.S. conglomerate General Electric (GE). “So the idea of having some policy responsibility in the body Monti, then Europe’s Competition Commissioner, torpe- which I saw as the engine of European integration was irre- doed the proposed $42 billion merger between GE and sistible,”he says with a chuckle. Honeywell, two of America’s industrial titans, in a move that He has been called “politically tone-deaf” by Institutional symbolized Europe’s growing regulatory and market power. Investor magazine. But this may be one of his greatest Now, the 62-year-old monetary economist, who admits to strengths as he has frequently defied political pressure. In being “a bit of a shy guy,” is carving out a fresh sphere of influ- 1999, he refused to bend after deciding that duty-free sales of ence as head of a new European think tank called Bruegel, alcohol and tobacco to tourists traveling within the European named after the Flemish family of painters—although it is also Union (EU) should be scrapped, standing up to intense lob- an acronym for “The Brussels European and Global Economic bying by politicians and retailers for a reprieve for the popu- Laboratory.” One of Pieter Bruegel the Elder’s most famous lar tax break. “It is this independence that has commanded paintings is the Tower of Babel,but that is not what Monti had considerable respect from national competition authorities, in mind when he proposed the name. “What strikes me very lawyers, and business,” says Margaret Bloom, a visiting pro- much is that what one sees in Bruegel’s paintings is the inter- fessor in the School of Law at King’s College, London, in an action among people and also those market scenes of Flanders assessment published in Competition Policy International. in the 16th century. So I see him as fully attentive both to “Commissioner Monti also maintained a very dignified human interaction and as an observer of markets.” approach in the face of heavy—and arguably, one-sided— The son of a banker, Monti grew up in the shadow of World press criticism of some decisions,”she adds. War II. Long an advocate of free markets and a unified Europe, he influenced a generation of European economists while hold- Embarrassing reversals ing a series of academic positions in Italy. The Yale-trained pro- It was his role as antitrust tsar that attracted the most atten- fessor, who studied under James Tobin and is currently tion. After a series of three embarrassing reversals at the hands president of Bocconi University in Milan, has always been a bit of the courts, Monti introduced major changes in the way of a maverick. During a period in the 1970s when Italy did not competition policy is enforced in the EU. Lawyer Nicholas publish official money supply figures, Monti came out with his Levy says that Monti surprised even his harshest critics. “His own quarterly estimates that became known as the “Monti M1” response to the trilogy of judgments defined his tenure as 44 Finance & Development June 2005 ©International Monetary Fund. Not for Redistribution Monti explaining in July 2001 the decision to block the GE-Honeywell merger. Commissioner, served as a catalyst for change, and formed the Capital, to gain a dominant position in the small engine, basis for his legacy,” says Levy, who is an expert on European avionics, and non-avionics markets in which it competes. merger regulation. The spat highlighted the possibly divergent views between The three reversals took place in 2002 when the European the EU and the United States about the role of regulation and Court of First Instance threw out rulings by the European markets. “In the United States, we have much greater faith in Commission that banned Airtours, the British package holi- markets than we do in regulators. Some commentators have day company, from taking over rival First Choice, and suggested that, by contrast, the European Union comes from a blocked the takeover of Legrand by its fellow French electric- more statist tradition that places greater confidence in the ity company Schneider Electric. The court also overturned a utility of government intervention in markets,”said Deborah ruling against Tetra Laval, the Swedish packaging maker, Platt Majoras, the U.S. Deputy Assistant Attorney General in acquiring Sidel, the French plastics company. The judgments comments about the GE-Honeywell case. were a turning point for Monti, who had started out deter- For Welch, it tarnished his swan song. “It was never a per- mined to expand and develop antitrust and competition sonal battle between Commissioner Monti and myself,” rules within the EU. Having conceded that “our record in the merger area is less glorious after these court rulings,” Monti implemented a series of reforms that widened the test for Seeing competition through an economic lens anti-competitive behavior, made procedures more flexible Monti is credited with strengthening the role of economic and transparent, and established stronger internal policies. analysis in EU competition enforcement, a field mostly domi- He promoted economic analysis in merger reviews, appoint- nated by lawyers. In September 2003, he appointed Lars- ing the first chief economist under the Directorate-General Hendrik Röller, a former professor at Humboldt University in for Competition (DG COMP) (see box). And he cracked Berlin, as the first chief economist in the Competition down strongly on cartels and modernized EU competition Directorate. Economics can play a critical role in assessing, for law, introducing new regulations and hitting companies with example, whether a merger between two companies could big fines. result in greater efficiencies that would benefit consumers, or But his biggest test came with the proposed merger of give the merged company such control of a market that con- General Electric and Honeywell. His ruling blocking the sumers would ultimately lose. merger put him on a collision course with U.S. regulators Röller, an empirical economist, now has a team of 10 econ- who had already approved it, and subjected him to wide- omists working for him. But critics imply that this is too few—after all, the U.S. Federal Trade Commission and the spread criticism from U.S. politicians, media, and business U.S. Department of Justice’s Antitrust Division have a com- leaders. Then U.S. Treasury Secretary Paul O’Neill called the bined staff of at least 100 economists working on antitrust. decision “off the wall,” while some antitrust experts said it “Given that the EU and U.S. economies are of similar size and was based on faulty analysis. most significant mergers are noticed in both jurisdictions, the In deciding to block the merger, the EU relied on two the- Chief Economist’s Office at DG COMP would appear to be ories of competitive harm. First it found that the merger rather understaffed,” commented David Evans and Carsten would strengthen GE’s already dominant position in the Grave in an article assessing the changing role of economics in market for large jet engines. Second, it found that the merger competition policy under Monti (Evans and Grave, 2005). would enable Honeywell, backed by financing from GE Finance & Development June 2005 5 ©International Monetary Fund. Not for Redistribution he said in his autobiography. “He and I always had cordial new Brussels think tank, managed by reputed French econo- dealings and our teams made many efforts to overcome our mist Jean Pisani-Ferry, a professor at Université Paris- differences. Unfortunately, we were operating under a set of Dauphine and former executive president of the French rules that allowed the Commission to function as both the Council of Economic Analysis. Bruegel will focus on the eco- opposing team and the umpire.” nomic challenges and global responsibilities facing Europe in Monti argues that GE-Honeywell is an exception that the context of globalization. It is backed by 20 European and masks a large increase in transatlantic cooperation over the international companies and 12 European governments.