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Finance & Development
A quarterly magazine of the IMF
June 2005, Volume 42, Number 2

People in Economics -- Super Mario and 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: a decorous, scholarly, eminently proper Italian named Mario Monti."

T.R. Reid in "The United States of Europe: the New
Superpower and the End of American Supremacy."

Mario Monti has something of the Harry Potter about him. Europe´s bespectacled former antitrust tsar, who tamed Microsoft and humbled the head of one of America´s biggest manufacturing corporations, has a gracious manner that masks an earnest zeal. Dubbed "Super Mario" by colleagues and the press, the neatly tailored Italian economics professor was transformed for many in Europe in 2001 into a hero for standing up to "Neutron" Jack Welch, the straight-talking chairman of U.S. conglomerate General Electric (GE). Monti, then Europe´s Competition Commissioner, torpedoed the proposed $42 billion merger between GE and Honeywell, two of America´s industrial titans, in a move that symbolized Europe´s growing regulatory and market power.

Now, the 62-year-old monetary economist, who admits to being "a bit of a shy guy," is carving out a fresh sphere of influence as head of a new European think tank called Bruegel, named after the Flemish family of painters—although it is also an acronym for "The Brussels European and Global Economic Laboratory." One of Pieter Bruegel the Elder´s most famous paintings is the Tower of Babel, but that is not what Monti had in mind when he proposed the name. "What strikes me very much is that what one sees in Bruegel´s paintings is the interaction among people and also those market scenes of Flanders in the 16th century. So I see him as fully attentive both to human interaction and as an observer of markets."

The son of a banker, Monti grew up in the shadow of World War II. Long an advocate of free markets and a unified Europe, he influenced a generation of European economists while holding a series of academic positions in Italy. The Yale-trained professor, who studied under James Tobin and is currently president of Bocconi University in Milan, has always been a bit of a maverick. During a period in the 1970s when Italy did not publish official money supply figures, Monti came out with his own quarterly estimates that became known as the "Monti M1" and the "Monti M2," eventually prompting the publication of official numbers.

Said by the Economist to have a "formidable combination of charm, intelligence, and an ability to be polite even when he is being stubborn," Monti held two high-profile jobs in the European Commission, first as Commissioner for the Internal Market, Financial Services, and Financial Integration during 1995 and then as Commissioner for Competition until late 2004, giving him a chance to put some of his economic theory into practice.

He says that he has "always loved politics, but always hated party politics," leading him to turn down a series of offers of cabinet jobs in Rome. But he did not hesitate when he was offered the job at the European Commission because that was a way to be involved in politics without a party affiliation. He also believed that European integration was the key to modernizing both the Italian economy and many others in Europe. "So the idea of having some policy responsibility in the body which I saw as the engine of European integration was irresistible," he says with a chuckle.

He has been called "politically tone-deaf" by Institutional Investor magazine. But this may be one of his greatest strengths as he has frequently defied political pressure. In 1999, he refused to bend after deciding that duty-free sales of alcohol and tobacco to tourists traveling within the European Union (EU) should be scrapped, standing up to intense lobbying by politicians and retailers for a reprieve for the popular tax break. "It is this independence that has commanded considerable respect from national competition authorities, lawyers, and business," says Margaret Bloom, a visiting professor in the School of Law at King´s College, London, in an assessment published in Competition Policy International. "Commissioner Monti also maintained a very dignified approach in the face of heavy—and arguably, one-sided—press criticism of some decisions," she adds.

Embarrassing reversals

It was his role as antitrust tsar that attracted the most attention. After a series of three embarrassing reversals at the hands of the courts, Monti introduced major changes in the way competition policy is enforced in the EU. Lawyer Nicholas Levy says that Monti surprised even his harshest critics. "His response to the trilogy of judgments defined his tenure as Commissioner, served as a catalyst for change, and formed the basis for his legacy," says Levy, who is an expert on European merger regulation.

The three reversals took place in 2002 when the European Court of First Instance threw out rulings by the European Commission that banned Airtours, the British package holiday company, from taking over rival First Choice, and blocked the takeover of Legrand by its fellow French electricity company Schneider Electric. The court also overturned a ruling against Tetra Laval, the Swedish packaging maker, acquiring Sidel, the French plastics company. The judgments were a turning point for Monti, who had started out determined to expand and develop antitrust and competition 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 anti-competitive behavior, made procedures more flexible and transparent, and established stronger internal policies. He promoted economic analysis in merger reviews, appointing the first chief economist under the Directorate-General for Competition (DG COMP) (see box). And he cracked down strongly on cartels and modernized EU competition law, introducing new regulations and hitting companies with big fines.

But his biggest test came with the proposed merger of General Electric and Honeywell. His ruling blocking the merger put him on a collision course with U.S. regulators who had already approved it, and subjected him to widespread criticism from U.S. politicians, media, and business leaders. Then U.S. Treasury Secretary Paul O´Neill called the decision "off the wall," while some antitrust experts said it was based on faulty analysis.

In deciding to block the merger, the EU relied on two theories of competitive harm. First it found that the merger would strengthen GE´s already dominant position in the market for large jet engines. Second, it found that the merger would enable Honeywell, backed by financing from GE Capital, to gain a dominant position in the small engine, avionics, and non-avionics markets in which it competes.

The spat highlighted the possibly divergent views between the EU and the United States about the role of regulation and markets. "In the United States, we have much greater faith in markets than we do in regulators. Some commentators have suggested that, by contrast, the European Union comes from a more statist tradition that places greater confidence in the utility of government intervention in markets," said Deborah Platt Majoras, the U.S. Deputy Assistant Attorney General in comments about the GE-Honeywell case.

Seeing competition through an economic lens

Monti is credited with strengthening the role of economic analysis in EU competition enforcement, a field mostly dominated by lawyers. In September 2003, he appointed Lars-Hendrik Röller, a former professor at Humboldt University in Berlin, as the first chief economist in the Competition Directorate. Economics can play a critical role in assessing, for example, whether a merger between two companies could result in greater efficiencies that would benefit consumers, or give the merged company such control of a market that consumers would ultimately lose.

Röller, an empirical economist, now has a team of 10 economists working for him. But critics imply that this is too few—after all, the U.S. Federal Trade Commission and the U.S. Department of Justice´s Antitrust Division have a combined staff of at least 100 economists working on antitrust. "Given that the EU and U.S. economies are of similar size and most significant mergers are noticed in both jurisdictions, the Chief Economist´s Office at DG COMP would appear to be rather understaffed," commented David Evans and Carsten Grave in an article assessing the changing role of economics in competition policy under Monti (Evans and Grave, 2005).


For Welch, it tarnished his swan song. "It was never a personal battle between Commissioner Monti and myself," he said in his autobiography. "He and I always had cordial dealings and our teams made many efforts to overcome our differences. Unfortunately, we were operating under a set of rules that allowed the Commission to function as both the opposing team and the umpire."

Monti argues that GE-Honeywell is an exception that masks a large increase in transatlantic cooperation over the past five years. The EU was also heavily involved in setting up the International Competition Network, a forum for more than 80 competition agencies around the world. And although the EU and the U.S. Department of Justice took divergent paths on Microsoft, Monti says the differences are understandable. "We had consulted with great frequency and depth with our American colleagues. We have come to different conclusions, but that should not surprise too much," he suggests, arguing that even different U.S. administrations had taken different approaches to the software giant. Accusing Microsoft of antitrust violations, the EU Commission last year fined the company a record $650 million and ordered it to unbundle its Windows operating system from its media player. Microsoft is appealing.

In addition to making the EU what he calls "an engine for international cooperation on antitrust," Monti is also proud that he helped secure a strong place for competition policy in the new European constitution. "There was a serious threat to the powers of the European Commission in the area of competition. There were ideas of setting up a separate competition agency. There was a serious attempt by many member states to dilute the EU´s and the Commission´s power in state aid control. I have spared no efforts to work with the members of the convention, and to lobby the constitutional process, so that competition would come out fully safeguarded. And, in fact, there has been even some enhancing of the position of competition in the new constitution," Monti says.

Despite some accusations that the EU has used competition policy to buttress European competitors to American companies, Monti rejects this, saying that the "beauty of a serious enforcement of competition policy is that it´s blind to nationalities." He points to a string of decisions that have blocked mergers within the EU—for example, Volvo-Scania and Schneider-Legrand. The European Commission also levied large fines to penalize illegal subsidies. Shortly before Monti stepped down, the Commission ordered seven German regional public banks to repay more than 3 billion euros in illegal subsidies they received from their regional governments in the 1990s. The ruling ended a decade-long battle between Germany´s cosseted Landesbanken and the EU´s executive arm that was seen as a major front in the Commission´s campaign to stamp out protectionism and build a single European market based on liberal economic values. "These decisions close a very long and painful dispute between private and public banks in Germany, thereby creating a level playing field in the sector," said Monti.

Brainstorming for Europe

Although his term at the Commission has ended, Monti will continue to influence European policy through Bruegel, the new Brussels think tank, managed by reputed French economist Jean Pisani-Ferry, a professor at Université Paris-Dauphine and former executive president of the French Council of Economic Analysis. Bruegel will focus on the economic challenges and global responsibilities facing Europe in the context of globalization. It is backed by 20 European and international companies and 12 European governments. The board is chaired by Monti, who has experience in setting up two other economic institutes in Italy. The think tank will focus initially on three areas of research: macroeconomics and international finance; markets and regulation; and trade, migration, and development.

Bruegel plans to build relationships with other well-known institutes. Monti cites in particular the Institute for International Economics in Washington, where he is a member of the board of directors. "Fred Bergsten´s IIE is a highly-respected world model for any center doing work in international economics," says Monti. Bruegel was established on the suggestion of French President Jacques Chirac and German Chancellor Gerhard Schröder who felt that Europe needed a fresh approach to such issues as trade, open markets, migration, and development. Some observers argue that the EU has been built on a grand vision, but after last year´s "big bang" enlargement to 25 members, it is in danger of becoming too inward-looking.

Bruegel´s focus will be on the EU´s potential role as a global player. One of Monti´s pet themes is that Europe is well-placed to shape the institutions of globalization because of its experience at the European level of building new institutions of governance and policy coordination. Europe´s experience with cross-border integration has given it unparalleled knowledge about how to manage the process of globalization. "Europe has achieved a type of globalization process, albeit only on a continental scale," Monti states. Its input is essential, he argues, because otherwise globalization may face a backlash if it is driven "by one political superpower, and a small and declining (because of mergers) number of large multinational corporations." The governance of globalization has to be multilateral and Europe should play an important role. "Of course, not in an antagonistic way vis-à-vis the United States, but in a context where the U.S. understands that it badly needs this contribution of Europe to make globalization more acceptable."

At the same time, however, he notes that Europe badly needs more growth, productivity, and competitiveness or it will lack the requisite muscle and authority to play this global role. "That´s why I believe Europe, to help drive forward a governed globalization, alongside the United States in particular, has to become more like the U.S. in its own domestic economic structures, and this means, of course, more flexible markets and, well, the Lisbon agenda basically."

The Lisbon agenda, agreed by the EU in 2000, is shorthand for a series of ambitious reforms designed to make the European Union "the most dynamic and competitive knowledge-based economy in the world" by 2010. But compared with the United States, the European economy in fact remains sluggish. Both the European Commission and IMF staff forecast growth in the euro zone this year at 1.6 percent, down from 2.0 percent in 2004 partly because of higher oil prices, with unemployment remaining high, at 8¾ percent of the workforce. U.S. GDP growth, in contrast, is projected by the IMF at 3.6 percent, with unemployment of 5¼ percent.

Monti believes that one way of making sure that Europe starts to improve its competitive position is by putting pressure on countries that fall short of delivering commitments on the Lisbon strategy. For Monti, publishing a list of laggards is one way of applying pressure. "My hope is that the periodic reports that the European Commission will now have to publish will bring about some degree of naming and shaming," he asserts.

In other vital fields, however, Monti believes the EU has made spectacular progress. "Europe has achieved four fundamental transformations that have taken a lot of energy—the single market, the single currency, enlargement, and drafting the new constitution. Accomplishing this in just 10 years is an amazing achievement, which, of course, may well have damaged growth in the short term."

Although Europe looks bad in comparison with the United States on growth, productivity, and competitiveness, he argues that the EU is actually in a better position now than it was to establish long-term growth. "Ten years ago, the U.S. had a single market, a single currency, a constitution, and its enlargement toward the west had taken place a long time ago. The EU did not; now it has all four things. And don´t forget that the brilliant U.S. performance rests to some extent on a couple of dangerous deficits."

Even so, a critical issue remains: the ratification of the new European constitution. Monti believes that rejection of the proposed constitution would herald a period of fundamental uncertainty in Europe that could deter investment and undermine business confidence, as well as make it more difficult to streamline decision making.

Strong legacy

Monti argues that competition policy is a crucial part of this emerging new global governance infrastructure. His role in helping establish stronger links between global competition authorities is an important part of his legacy. Competition policy, he says, has to be enforced with equal vigor in relation to both business and governments. "That means an equal rigor and determination concerning cartels and abuses of dominance by companies, but also concerning controls on state aid to companies."

How effective he was may be a little soon to judge. "Commissioner Monti´s tenure will be remembered as a period of controversy and change," says Levy. The durability of his legacy "will be determined by his successors´ commitment to implementing the letter and spirit of the reforms instituted at his initiative." William Kolasky, a U.S. lawyer who specializes in international antitrust issues, argues that Monti moved the EU closer to a U.S. model for competition policy. "Central to Commissioner Monti´s success in the implementation of [his] reforms—from the U.S. perspective at least—has been that he has fully embraced a consumer welfare standard for competition enforcement," says Kolasky. But the EU remains too worried about mergers between conglomerates. "Greater faith should be placed in the competitive process rather than worrying about competitors who may be less efficient than the merged entity," he argues.

Monti´s three roles as an economist—teacher, policymaker, and commentator—have given him a lot of inner satisfaction. Many of his students now occupy prominent positions in economics, and he achieved considerable influence as an economic commentator in the pages of the Italian newspaper Corriere della Sera. But Monti admits that being Competition Commissioner gave him a thrill. "I cannot deny that being in charge of competition policy involves enormous tension because you have instruments to influence the real world there, but it´s a very, very challenging thing to do."


Bloom, Margaret, 2005, "The Great Reformer: Mario Monti´s Legacy in Article 81 and Cartel Policy," Competition Policy International, Vol. 1., No. 1 (Spring), pp. 55.

Evans, David S., and Carsten Grave, 2005, "The Changing Role of Economics in Competition Policy Decisions by the European Commission during the Monti Years," Competition Policy International, Vol. 1., No. 1 (Spring), pp. 133.

Kolasky, William J., 2005, "Mario Monti´s Legacy: A U.S. Perspective," Competition Policy International, Vol. 1., No. 1 (Spring), pp. 155.

Levy, Nicholas, 2005, "Mario Monti´s Legacy in EC Merger Control," Competition Policy International, Vol. 1, No. 1 (Spring), pp. 99.

Monti, Mario, 2004, "A Reformed Competition Policy: Achievements and Challenges for the Future," (Brussels: Center for European Reform).

Reid, T.R., 2004, The United States of Europe: the New Superpower and the End of American Supremacy (New York: The Penguin Press).

Welch, Jack, 2001, Jack: Straight from the Gut (New York: Warner Books, Inc.).

Jeremy Clift is a Senior Editor on the staff of Finance & Development.