CHAPTER 1. SMALLNESS OF AN ECONOMY AND MERGER
1.2. Relative smallness of an economy within the EU
In order to understand the concept of “small economy”, it should first be noted that an economy as such does not have a size. An economy has an inherent extension defined by actors participating in it (e.g., enterprises, consumers) and the primary resources it is based upon. It is the territory in which the economy takes place, which has size. Therefore, the notion of “small economy” is a mixed term which describes an economic circumstance on the one hand, and a state on the other. Law is always linked to territory, whereas economic activity is not, or is so only to a lesser extent. Hence, the precise notion would be
“economy in a small state”, while the notion “small economy” is in a way a contraction of both.17
As could be seen above, there is no single definition of a small economy. This is because size is a relative concept, and therefore, the notion of “small economy”
depends greatly on the framework which is being used as comparison.18
In the context of the EU, the relative smallness on many of its Members States in comparison to the whole EU or its largest Member States becomes apparent in the Table 1, which provides a comparison of the EU and its Member States’ population, GDP and GDP per capita in PPS.
The table indicates that while the five largest EU Member States (France, Germany, Italy, Spain and the UK) make up each 8-17% of the total EU population and 8–20% of the total EU GDP, the same indicators for the smallest EU Member States (such as Cyprus, Estonia, Latvia, Luxembourg, Malta, Slovenia) remain under 0.5% of the EU total each. These examples provide the most drastic comparison, while there is a range of other Member States whose population and GDP is less than 3% of the EU total each.19
As noted above, GDP per capita may have some influence on whether an economy which appears small in terms of population or GDP represents an equally sizeable market. Hence, the rather modest GDP per capita of Poland or Romania in comparison with the EU average may have the effect of attracting the characteristics of a small economy, while the significantly higher than EU average GDP per capita of some other Member States such as Luxembourg, the Netherlands, Austria or Sweden could work towards negating the effects of smallness.
17 Stoffel, Walter A.: “International Mergers: Merger in Small Economies”, in Annual Proceedings of the Fordham Competition Law Institute, International Antitrust Law &
Policy, edited by Hawk, Barry E., Fordham Competition Law Institute, Juris Publishing, Inc., 2007, p. 322.
18 Stoffel, p. 322.
19 There are all together 19 EU Member States whose population and GDP is less than 3% of the EU total each: Austria, Belgium, Bulgaria, Cyprus, Czech Republic, Den-mark, Estonia, Finland, Greece, Hungary, Ireland, Latvia, Lithuania, Luxembourg, Malta, Portugal, Slovakia, Slovenia, Sweden.
Table 1: Comparison of EU and its Member States’ population, GDP and GDP per capita in PPS, 2007
Population GDP at market
prices (MEUR) GDP per capita in PPS Size of Source: compiled by the author on the basis of the data available online at Eurostat webpage: http://epp.eurostat.ec.europa.eu (last visited 15.05.2009)
20 The volume index of GDP per capita in PPS is expressed in relation to the EU (EU-27) average set to equal 100. If the index of a country is higher than 100, this country’s level of GDP per head is higher than the EU average and vice versa.
However, in general, the five largest economies are also in the lead with respect to the main business indicators as can be seen from the data of structural business statistics presented in Table 2.
Table 2: Main indicators for the EU-27 non-financial business economy, 2004
Enterprises Turnover Value added Persons employed No. of Source: compiled by the author on the basis of Eurostat (SBS): “European Business facts and figures, 2007”.24
21 Excluding real estate activities and research and development.
22 Excluding mining and quarrying of energy producing materials and electricity, gas and water supply.
23 2003 data.
24 Eurostat (SBS): “European Business facts and figures, 2007” is Eurostat’s main reference publication that uses structural business statistics. It covers what is referred to as the business economy, i.e. the sum of industry, construction and services (NACE Sections C to K). It does not cover agriculture, forestry and fishing, nor the public administration and largely non-market services such as education and health. Due to the
Table 2 shows that together the economies of Germany, Spain, France, Italy and the UK generated about three quarters (74.1%) of the added value within the EU-27’s non-financial business economy in 2004, made 73.5% of all sales, and employed nearly two thirds (64.4%) of the EU-27’s workforce within 61.6% of all EU enterprises. At the same time, the smallest economies of the EU (such as Cyprus, Estonia, Latvia, Luxembourg, Slovenia)25 made up less than 0.5% each with respect to all these indicators.
Furthermore, Table 3 presents the two EU Member States with the highest levels of value added for main non-financial business sectors26.
Table 3: Largest Member States on the basis of value added for main non-financial business sectors, 200427
Sector Largest Second largest
Food, beverages & tobacco Germany UK
Textiles, clothing, leather & footwear Italy Germany
Wood & paper Germany Italy
Chemicals, rubber & plastics Germany France Other non-metallic mineral products Germany Italy
Metals & metal products Germany Italy
Machinery & equipment Germany Italy
Electrical machinery & optical equipment Germany France
Transport equipment Germany France
Furniture & other manufacturing Germany Italy
Non-energy mining & quarrying UK Germany
Energy UK Germany
Recycling & water supply Germany UK
Construction UK Spain
Motor trades Germany UK
Wholesale trade UK Germany
Retail trade & repair UK Germany
Hotels & restaurants UK France
Transport services Germany UK
Communications & media Germany UK
Business services UK Germany
Real estate, renting & R&D Germany UK
Source: compiled by the author on the basis of Eurostat (SBS): “European Business facts and figures, 2007”.28
lack of standard business statistics, financial services are kept separate from the other sectors referred to as the non-financial business economy (NACE Sections C to I and K). Available online: http://epp.eurostat.ec.europa.eu/cache/ITY_OFFPUB/KS-BW-07-001/EN/KS-BW-07-001-EN.PDF (last visited 15.05.2009).
25 No data on Malta available.
26 Please see supra note 24 on the choice of sectors listed in the table.
27 Data on Greece and Malta, not available; Luxembourg, 2003.
28 Eurostat (SBS): “European Business facts and figures, 2007”.
It can be seen from Table 3 that the five largest Member States represent the highest value added among the EU-27 with respect to the main non-financial business sectors. Germany was ranked either first or second for the vast majority of activities, with the only exceptions being construction and hotels and restaurants which were dominated by UK and France. Italy was among the two largest producers for six of the industrial activities, while the UK was one of the two principal generators of added value for each of the service sectors, and Spain was among the two largest generators of value added in construction sector.
Hence, there appears to be a large discrepancy between the large and the small not only with respect to general indicators such as population and GDP, but also with regard to the more business specific indicators such as the number of enterprises, total turnover and value added, as well as the number of employees. Furthermore, the large economies tend to dominate in all sectors of economy. In this light, regardless of the exact definition of smallness, it is clear that certain economies are small (such as Austria, Belgium, Bulgaria, Czech Republic, Denmark, Finland, Greece, Hungary, Ireland, Lithuania, Portugal, Slovakia, Sweden) or even very small (such as Cyprus, Estonia, Latvia, Luxem-bourg, Malta, Slovenia) compared with certain other economies or compared with the EU-27 in total. As noted above, the smaller the economy, the more the attributes related to smallness are likely to be felt. Nevertheless, these named countries are regarded as small economies for the purposes of this thesis.