Europe has spent decades worrying about companies becoming too big. Now it faces a more uncomfortable possibility: perhaps they are not big enough. While US giants expand across a vast home market, many European firms still hit national borders, fragmented capital pools and regulatory friction long before they become global contenders.
That tension is beginning to show up in merger policy. The latest Commission review is its broadest in two decades, with the draft giving more attention to scale, investment and innovation. The UK is moving in a similar direction. Updated Competition and Markets Authority guidance sets out more clearly when R&D, investment or scale gains can count in a deal’s favour. Brussels plans to finalise its guidelines in Q4.
The appeal of scale
For companies, the attraction is obvious. Euronext chief executive Stéphane Boujnah recently said a possible combination with Deutsche Börse could create a pan-European market infrastructure with “planetary scale." Larger groups can spread heavy technology costs, combine capabilities and fund investments that may be difficult to justify alone.
Brussels blocked Deutsche Börse’s proposed merger with NYSE Euronext in 2012 and another tie-up with the London Stock Exchange in 2017. A decade later, Brussels is writing scale back into the conversation: its draft guidelines explicitly discuss expansion that improves competition and global competitiveness.
The evidence is less obliging. European Commission research published this month examined more than 3,000 mergers cleared between 1990 and 2024. On average, citation-weighted patenting fell among merging firms and their rivals, while markups and accounting profits rose. Researchers say the pattern fits greater market power better than merger-generated efficiencies.
A forthcoming review by economists Justus Haucap and Joel Stiebale also finds that most studies of mergers between direct competitors show substantial damage to innovation. Evidence for other types of deals is more positive, suggesting the structure of a merger matters as much as its size.
Europe’s 27-market problem
Yet Europe’s companies may be small for reasons mergers cannot fix. Catriona Meehan, director of public affairs at Omio, says consolidation can help businesses build the scale to invest, “but it is not a substitute for a genuinely functioning Single Market."
“Europe remains fragmented across regulations, payment systems, consumer behaviours and transport networks,” she says. “In practice, scaling can mean navigating 27 different sets of requirements, or one EU rule implemented differently in each Member State.”
Removing those barriers, Meehan argues, would make it easier for more European scale-ups to compete globally.
The IMF research reaches much the same diagnosis. It describes Europe as having a “scale deficit” and says publicly traded US firms under 50 are worth more than eight times their EU counterparts, while fragmented capital, labour and consumer markets make cross-border expansion harder.
Merger policy may help some European companies become larger, but it cannot make 27 markets behave like one. Regulators must separate deals that create capabilities firms genuinely lack from those that simply leave Europe with fewer, larger incumbents.
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