THE 20 MEMBERS OF THE EUROPEAN COMMISSION voted unanimously to block General Electric’s $45 billion takeover of Honeywell, and what’s the result? For one thing, the biggest gap between front-page and business-page reporting in two decades. The financial boom of the 1990s always had a strong page-one, human-interest element. This story is different-it,s pure business-section. But that doesn,t mean it,s too boring to pay attention to. Because it’s also about new power relations at the highest levels. When G.E.’s chairman Jack Welch announced a year ago that he would delay his retirement in order to shepherd the deal through to completion, the thought of European involvement never occurred to him. He promised “the cleanest deal you,ve ever seen.” In May, it sailed through the Justice Department,s antitrust division. And then it went to Mario Monti, the chief antitrust regulator of the European Union. A big worry for Monti was General Electric’s Capital Aviation Services (GECAS), an air-leasing company. By leasing all its jets from Honeywell, he figured, GECAS could secure an advantage over its European competitors. Treasury secretary Paul O,Neill called this reasoning “off the wall.” It didn’t wash, either, with Charles James, just named head of the antitrust division in the Bush Justice Department, who attacked European obstructionism last week, saying, “Clear and longstanding U.S. antitrust policy holds that antitrust laws protect competition, not competitors.” James thereby showed that he missed the point entirely. One thing to be clear about is that both G.E. and Honeywell are U.S. companies. The sticking point in the merger wasn’t that General Electric was trying to buy off a piece of Europe’s industrial heritage. And it wasn’t strictly a question of American versus European interests. One of the most underreported aspects of the merger was the strenuous efforts made by American competitors-particularly Connecticut-based United Technologies and Wisconsin-based Rockwell International-to lobby EU regulators to stymie the deal. What changed was this. The economies of scale for transnational corporations are now such that no deal can be profitable if it,s operative only in the United States. The 15 countries of the European Union have always constituted a larger economic bloc than the United States-but one so politically divided that it never had anything like America’s political influence. American antitrust law became world antitrust law because no one in Europe could agree on any alternative to it. The blockage of the merger is evidence that Europeans now feel confident enough about their political union to speak with a united voice and lay down the law. In other words, more than the merits of the individual case were at stake in this merger. But all the American players behaved as if they didn,t realize that Europe had decided to use the occasion to declare itself a second rulemaker in the global economy. The Washington Post decried Monti,s role as a threat to “comity” between the two continents, antitrust regulators-as if that comity had been the result of anything other than the Europeans, lack of an antitrust policy, at least one they could enforce against the wishes of the United States. General Electric, at one point, tried to fix the deal by promising to turn GECAS into a “ring-fenced entity,” which would be under strict self-regulation in its dealings with Honeywell. The assumption was that, since this remedy had worked like a charm in front of American antitrust judges, it would prove acceptable to the Europeans, too. But Europe’s regulators rejected the remedy outright. There was a message there, too. No longer will it judge such deals by whether an American court would see them as being in good faith. From now on, it will judge them by whether they serve the interests of competition-as Europe understands it. In a press release after the takeover was blocked, General Electric complained, “The commission took a fundamentally different approach to competitive issues from its counterparts in the United States, Canada, and nearly a dozen other jurisdictions.” Duh. That,s precisely what Europe was up to-establishing its own antitrust norms. But because that goal has now been achieved, G.E.’s failure to acquire Honeywell is not likely to usher in an era of bad trade relations between Europe and the United States. The European Union blocked this deal to establish its power-not its bloody-mindedness or stupidity. Like a nuclear test, its move was meant to send a message about one,s seriousness-not to blow up the world. In the trade battles of the 1990s (particularly over African and Caribbean bananas), Europe learned enough about American willingness to retaliate that a renewal of cooperation will certainly be seen as both continents, best course. And in the long run, the failure of the G.E.-Honeywell merger won’t be such a big deal-provided we understand that the new balance of economic power that made it possible is a very big deal indeed. Christopher Caldwell is senior writer at The Weekly Standard.
