Amidst the novel
coronavirus outbreak, the world economy has been sent in a downward spiral.
Small businesses are struggling to stave off bankruptcy, while multinationals
are scurrying to secure government support. Many shareholders see their
portfolio’s value shrinking as stock markets take hit after hit. On top off the
economic hardships are global leaders who try to shift the blame to other
countries to distract from their failures to act duly.
During tough times
there are always those who see opportunity. The crisis causes many businesses
to drop in value. Opportunistic investors and corporate raiders are presented
with the chance to buy stocks at alluring prices.
CureVac, a German biotech firm, found itself at the centre of controversy after the alleged US attempts to gain access to an experimental coronavirus vaccine it is developing. Although the company later denied that a formal offer was made, the incident showed that the EU needs to implement mechanisms to deflect foreign attempts to take over strategic sectors.
Europe Commissioner Margrethe
Vestager even went as far as to say that “European countries should buy stakes
in companies to stave off foreign threats.” (FT, 2020)
The fear that foreign
powers can buy European companies to take over their technology has existed
before the coronavirus outbreak. A study on foreign ownership of EU firms
carried out by the Commission showed the importance of foreign investment in
the EU economy. Foreign ownership has risen constantly in the last ten years.
This increase is largely due to acquisitions of increasingly large, listed
Some of these companies are backed by non-EU governments. This in itself is not an issue, as governments are allowed to act as market participants in the EU. State-backed companies often have access to extra funds however, causing an unfair competitive advantage compared to European businesses. As these are usually not backed by their governments.
Italy is one of the biggest targets for foreign investors in the economic downturn. It is among one of the most important countries, purely looking at economic interests in Europe. It is a source of strategic assets both in advanced and traditional industries and internationally recognized for its famous brands and technology.
Since the coronavirus
outbreak in February, Italy’s economy has been severely bruised. With more than
20,000 deaths from COVID-19, its economy is likely to suffer the deepest
recession in the country’s history since WWII.
Because the economy is
suffering, many companies are in distress. Italy is worried that foreign
competitors will take over businesses at cheap prices. To prevent this from
happening the Italian government quickly extended the “golden power rules” to a
wide range of sectors, including health, finance, insurance, land and
infrastructure, raw materials, robotics, and media, among others (The Diplomat, 2020). The “golden power rules” is a tool that can
be used by the government to prohibit or impose restrictions/conditions to an
investment by foreign persons in certain industries deemed strategic for the
Spain has already implemented new rules on foreign investment. On March 17, the government stated that investors from outside the EU will require a new authorization from the government if they wish to control or increase their participation to more than 10% in a local company, when it is public or private, and in a strategic sector (Bloomberg, 2020).
Spain and Italy are not the only ones protecting their companies from foreign takeovers. The Polish government wants to be notified of any planned takeovers of companies by investors from outside the European Union. They also announced a rescue plan worth up to €72,37 billion to assist its economy in surviving the pandemic and resulting crisis (bbj, 2020).
Europe’s answer to the foreign threat should come sooner rather than later. In March 2019, the EU implemented the FDI Screening Regulation. It embodies the first EU common framework for screening FDI into Member States’ territories and within the EU zone. The new regulation provides member states and the commission with a framework to investigate incoming foreign direct investment that may affect security and public order (blogdroiteuropeen, 2020).
The regulation defines
a procedure in which the commission may issue statements in case an investment
threats security or public order of more than one member state. The same goes
for investments that could undermine a project or programme that benefits the
whole EU. Cooperation between member states on investment screening, sharing experience,
best practices and information on common concerns may be encouraged by the
The regulation will
become active in October 2020, EU-wide. Correct implementation of such
regulations always takes time. Currently, 14 EU-countries will work together
using the proposed framework. The call for more protection against hostile
foreign takeovers has been heard for months in Brussels, especially in a time
of unprecedented economic competitiveness between the United States and China.
Time will tell whether the new regulation offers the EU economy the protection
it has asked for.
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