Europe's increasingly protectionist economic trajectory after Brexit is becoming clearer by the day.

Germany will this week launch a new industrial strategy that will align it more closely with France in its desire to protect national champions against threats from China and the U.S.

Economy Minister Peter Altmaier will unveil the strategy on Tuesday to grant special support to sectors such as batteries for electric cars, chemicals and 3D printing, two industry sources and one official said. The German newspaper Die Welt reported Thursday that the strategic industries for protection in Altmaier's paper would also include cars, machine engineering, medical devices, green technologies, aerospace and defense.

Altmaier's plan comes hard on the heels of proposals from the BDI, Germany's biggest industrial group, to take a more defensive line against China and allow companies to bulk up into European champions that can take on Asian rivals, even if that means rewriting the EU's hallowed competition rulebook.

The debate over national champions has taken center stage politically because Paris and Berlin are frustrated that the European Commission's antitrust regulators are set to block a landmark merger between France's Alstom and Germany's Siemens in the rail sector.

"We have allowed too many mergers, so it is wrong to change the rules to allow for even larger mergers" — Lars Feld, German economist

Brussels argues that a combined Franco-German train behemoth would harm consumers and smaller businesses in the same sector, but the free marketeers at the Commission are looking increasingly isolated. Freed from British economic liberalism in the EU, French and German policymakers are increasingly looking to tear up the EU's competition and merger rules to cosset their biggest businesses.

Only last Thursday, Altmaier told parliamentarians in the Bundestag that the EU should allow the creation of "European champions" that can compete with China and the U.S. "That is why we must ... consider what adjustments are necessary in our competition law," he said. His French counterpart Bruno Le Maire has also called for new EU competition rules to smoothe the creation of champions.

The German economy ministry explicitly named certain companies as important, including BASF, Thyssenkrupp, Siemens and Deutsche Bank, which will raise eyebrows in Brussels, particularly if Germany intends to allow these companies to bend EU merger rules.

Manfred Weber, the German conservative among the favorites to succeed Jean-Claude Juncker as Commission president, has also slammed the Commission's move to block the Alstom-Siemens merger as a "major mistake" and raised the prospect of changing EU competition laws.

Après nous le dirigisme

Critics warn that without the counterweight of Britain, France and Germany are likely to push the EU toward more dirigiste economic policies that could harm consumers by creating inefficient monopolies.

German economists are alarmed. Lars Feld, a member of the country's national council of economic experts (informally described as Germany's "wise men"), said the plan is akin to calling for a "centrally planned economy."

"We used to be worried that if Britain left the EU, Germany would be more isolated in defending liberalism against anti-market policies. But now it looks like Germany is going to be the driver of such free-market hostility."

According to the ministry, the paper will be named "Industrial Strategy 2030" — an echo of Beijing's "Made in China 2025."

"Minister Altmaier will present measures to secure the economic and technological leadership of Germany and the European Union with the industrial strategy," a spokesperson for the economy ministry said.

The plan is already being hotly debated in Germany. Economists decried the strategy as a dangerous sign that Germany is promoting state intervention. Feld said he fears the plan is a “radical upheaval of German economic policy” and said the call for European champions is an “attack on EU competition policy.”

“Researchers have found over the past years that merger control was too lax. We have allowed too many mergers, so it is wrong to change the rules to allow for even larger mergers," he said.

Isabel Schnabel, another member of the council of economic experts, said that instead of subsidizing companies, Germany should spend the money on research and education. "Dear Peter Altmaier, if we have so much money to spend — why not ... create three to five German Berkeleys instead of pouring money into national champions?" she said on Twitter.

A shot of pragmatism

Traditionally, it's been the left in Germany that was friendlier toward state intervention. But the plan by Altmaier, a center-right politician, signals a broader shift in Germany toward industrial planning.

Commentators from industry and Altmaier’s own Christian Democratic Union (CDU) party see the strategy as a welcome dose of pragmatism. Faced with aggressive strategies in China and the U.S. to attract manufacturing and high-value technologies, Germany can no longer afford to play laissez faire and needs to identify the sectors that it wishes to maintain in Europe, the argument goes.

Stefan Rouenhoff, a lawmaker from the CDU and member of the Bundestag’s committee for economic affairs and energy, welcomed the minister’s plans.

“We are in the midst of a competition of economic systems. This is about asserting Germany and Europe in the face of competition from the economic behemoths China and the United States,” he said. “Both in technological development and in digitization, we are facing incredible leaps that will massively change our economic and social lives.”

The risk of mega companies is that they become cumbersome behemoths that under-invest and overcharge consumers.

Rouenhoff said he has not seen Altmaier’s paper yet, but mentioned what he considers to be important: “Points of an industrial strategy should above all include the promotion of innovation and research and the promotion of digitization in our country, for which a good digital infrastructure is indispensable. Ultimately, however, we also need new approaches to competition and tax policy.”

According to Die Welt, the paper names several measures to help strategic sectors, ranging from calls for a competitive tax system and affordable energy to subsidies for the development of new key technologies.

But the paper also endorses much more controversial measures, particularly a call for mega-mergers along the lines of Alstom-Siemens. In the eyes of their proponents, such mergers would allow EU companies to punch in China’s weight class. But the free-market critics say the risk of mega companies is that they become cumbersome Leviathans that under-invest and overcharge customers.

Hans von der Burchard contributed reporting.

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