Where national interest ends: the Commission's new guidance on Member States' powers in EU-dimension mergers

Apart from the new "theories of benefit" (covered here) and novel theories of harm such as entrenchment (covered here), the European Commission’s draft Merger Guidelines (the Guidelines) also double down on EU Member States respecting the single market in spite of potential national interests.

For the first time, the Merger Guidelines address the question of when and how Member States may intervene in mergers that fall under the Commission's exclusive jurisdiction. Part III of the Guidelines provides detailed guidance on Article 21 of the EU Merger Regulation (EUMR), the provision that regulates Member States’ ability to take measures to protect "legitimate interests" other than competition in mergers with an EU dimension.

This is a direct response to a growing pattern of national interventions — particularly through foreign direct investment (FDI) screening mechanisms — that have in recent years delayed, conditioned or effectively blocked transactions cleared by the Commission. The Guidelines signal that the Commission is prepared to use its enforcement tools to push back against national interventions that fragment the internal market.

Why this matters now

The EU merger control regime is built on a one-stop-shop principle: mergers with an EU dimension are reviewed exclusively by the Commission, under a single set of rules. This avoids parallel or staggered national reviews, reduces the administrative burden for companies, and is a cornerstone of the internal market.

In recent years, however, this principle has come under pressure. Member States have increasingly used national FDI screening regimes and other regulatory tools to intervene in transactions, including purely intra-EU deals, that the Commission had already reviewed or was reviewing. Sometimes these interventions pursued genuine security objectives. In other cases, they appeared motivated by industrial policy, national champion considerations or outright protectionism.

The Commission always had the toolkit to regulate Member States’ attempts to intervene in mergers cleared by the Commission, contained in Article 21 EUMR and supported by case law of the European Court of Justice. Historically, this instrument has rarely been applied. Most recently, the Commission considered using it against Italy’s blocking of the Banco BPM/UniCredit takeover, but eventually initiated broader infringement proceedings against Italy’s Golden Power regime under general treaty provisions instead. In 2022, the Commission used Article 21 EUMR to force Hungary to give up its opposition against the acquisition of AEGON CEE by VIG.  

All earlier cases predate the rise of FDI regimes and include the Commission’s finding that conditions imposed by the Spanish energy regulator on E.ON for its bid for Endesa violated Article 21 (2006/2007) and the Commission’s review of a Portuguese measure that sought to block a cross-border banking merger (1999).

These precedents establish that the Commission has used its powers under Article 21in practice, but enforcement has, until now, been reactive and case-specific rather than systematic. 

It appears to be common practice of Member States not to notify any measures taken during their FDI reviews to the European Commission under Article 21 EUMR. The new Guidelines suggest that the Commission is going to take this issue much more seriously and will start to enforce Article 21 EUMR in earnest. It will be interesting to see whether these powers will now also be used in relation to FDI regimes which target EU acquirers outside the defence sector. 

What Member States may - and may not - do

Article 21 EUMR allows Member States to take measures in mergers subject to EU jurisdiction to protect three "recognised" legitimate interests without prior notification to the Commission:

• Public security. Interpreted strictly as requiring a "genuine and sufficiently serious threat to a fundamental interest of society" and explicitly excluding “purely economic ends, such as the promotion of the national economy or its proper functioning”.
• Media plurality. Covering the diversity and independence of media services.
• Prudential rules. The requirements ensuring financial stability of banks, insurers and investment firms.

Any other public interest that a Member State wishes to invoke must be notified to the Commission before the measure is adopted and may not be implemented until approved.

Even the recognised interests are not a blank cheque. The Guidelines make clear that the exemption from prior notification is to be "considered narrowly" — where "reasonable doubt exists whether a measure genuinely protects a recognised interest and/or complies with the general principles and other provisions of EU law, the notification and standstill obligation applies". This is a safeguard against Member States claiming “public security” grounds for all their interventions and will de facto also trigger requirement notifications in such cases where they are not absolutely clear-cut.

Anti-protectionism safeguards

In the context of a procedure under Article 21 EUMR, the Commission will also investigate whether the measures of the Member States comply with general principles and provisions of EU law. This includes, most notably, the freedom of establishment and the freedom of capital. The Commission will particularly observe that the following safeguards for restrictions of these freedoms are observed:

• Proportionality. Measures must be suitable and no more restrictive than necessary. In particular, outright prohibitions are “more likely to be found in violation of Article 21 EUMR than measures imposing conditions”. Measures whose effect is the abandonment of a transaction, such as “unduly lengthy regulatory review processes or unjustified conditions”, face the same scrutiny.
• Non-discrimination. The Guidelines spell out that “acquisitions by companies from other Member States (or companies with owners from other Member States) cannot be treated less favourably than acquisitions by national companies” and that Member States “cannot exercise their prerogatives to de facto practice favouritism, by encouraging acquisitions by specific firms or by firms of a specific nationality”. Measures targeting a specific transaction, as opposed to measures of general application, are flagged as more likely to infringe this principle.
• Genuine purpose. The Commission will scrutinise whether the stated objective is “the real reason underpinning the Member State's measure” or whether the intervention constitutes “a means of arbitrary discrimination or a disguised restriction of fundamental freedoms”.

While these principles derive from existing EU law, the Guidelines mark the first time the Commission has consolidated them in the specific context of merger control and set out how it intends to apply them in practice.

The intra-EU dimension: EU origin matters

Article 21 EUMR applies to all mergers with a Union dimension (i.e. exceeding certain turnover thresholds), independently of the origin of the companies. The notification requirements would therefore apply in all such mergers. 

However, when it comes to the substantive analysis, the Commission does distinguish between transactions involving EU companies and transactions involving non-EU companies. 

The Commission states that the EU "is founded on common values and promotes solidarity among Member States" and that "Member States or their nationals are thus prima facie not a threat to the public security of another Member State". Where a Member State claims otherwise, it must "adequately substantiate such claims upon request by the Commission”.

This is a significant statement. It does not prevent Member States from screening intra-EU acquisitions, but it establishes a significant evidentiary burden to overcome for treating acquisitions by companies or nationals from other Member States as security threats. 

This distinction also leads the Commission to treat acquisitions involving third-country firms differently. The Guidelines expressly preserve Member States' power to adopt measures in relation to acquisitions involving firms or nationals of third countries on the basis that they are not protected in the same way by the EU’s fundamental freedoms. The scope of the case law on which this view is based however remains contested. 

However, according to settled case law of the European Court of Justice, most recently confirmed in the Xella case, the mere fact that an EU-based company has non-EU shareholders is not enough to deny it the protection afforded to it by the fundamental freedoms. EU companies with non-EU shareholders are, therefore, entitled to the same level of protection and non-discrimination. See here for our analysis of the Xella case. There is a certain tension between the Xella case law that considers foreign ownership of an EU company to be irrelevant and the FDI Screening Regulation and national FDI practice which consider it to be very relevant.  

The Guidelines' reasoning also invites a broader question that has been debated for some time: if the Commission sees hardly any scope for prohibiting intra-EU transactions on public security grounds, should Member States be permitted to subject such transactions to mandatory filing requirements and standstill obligations under their FDI screening regimes in the first place? A mandatory filing regime that places purely intra-EU deals under a prohibition pending clearance is itself a restriction on the free movement of capital and the freedom of establishment. If the substantive basis for intervention is as narrow as the Guidelines suggest, the proportionality of imposing such procedural burdens — with the corresponding delays, costs and deal uncertainty — is equally questionable.  

In addition, the Guidelines also state that acquisitions by companies from other Member States cannot be treated less favourably than acquisitions by national companies. This raises the question whether the practice of some Member States to require FDI notifications for acquisition by investors from other EU Member States but not from their own, would be compatible with EU law.

An exception might apply in relation to military activities: In this sector, EU law recognizes a derogation from general EU laws that allows Member States to take measures to protect their essential security interests (though the exact scope of this derogation is subject to disagreement between the Commission and Member States). 

The FDI screening bridge

The major innovation compared to previous case law is the explicit link between EU merger control and FDI screening. The Guidelines provide that measures adopted for the protection of public security following a review under the EU FDI Regulation, based on the opinion of the Commission in relation to the specific transaction, are presumed compatible with Article 21 EUMR.

This creates a clear incentive structure: FDI screening decisions that are coordinated through the EU cooperation mechanism and aligned with the Commission's opinion benefit from a safe harbour. Unilateral national measures that bypass this framework do not. 

What this means for businesses

For companies planning cross-border transactions in Europe, Part III of the new Merger Guidelines carries several important takeaways:

1. National FDI objections to intra-EU deals face a higher burden. The presumption that EU-origin investors are not a security threat shifts the onus to the intervening Member State. Companies targeted by such measures now have a clearer basis to challenge them and find an ally in the EU Commission.
2. Protectionist interventions are more vulnerable to challenge. The Guidelines provide a structured framework — proportionality, non-discrimination, genuine purpose — against which national measures can be tested. Dealmakers should document and challenge interventions that appear to pursue economic rather than security objectives.
3. The one-stop-shop principle is being reinforced, not eroded. At a time when geopolitical pressures and industrial policy ambitions are pulling in the direction of more national intervention, the Commission is doubling down on its exclusive competence as a foundation of the internal market.

The draft Guidelines are currently out for public consultation. Even in their current form, they represent the Commission's clearest statement yet that the integrity of the one-stop-shop system is not negotiable — and that national interventions in EU-dimension mergers will be held to the standards of EU law, not just national policy preferences.