The competition law in the European Union may present a solution to the recent sovereign debt crisis. Traditionally, investment by foreign investors in the European Union through merger and acquisition is continuously examined. It may be simply said that it is not easy to make an investment in a stake, even a minor stake, in a large company. Europehas effectively imposed a major monopoly over a broad geographical area. Privatization of national enterprises is out of the question in most places. This attitude should now change in the face of the sovereign debt crisis.

On Nov 18, 2011, Mario Draghi, president of the European Central Bank (ECB), openly opposed the printing of more money to purchase more sovereign debt from European countries. The warning was that there will be huge economic costs if the bank’s credibility is put at risk.

His statement coincided with the quarrel over the role of ECB between British Prime Minister David Cameron with German Chancellor Angela Merkel. At issue was whether the ECB should become the lender of last resort to the most debt-laden governments.

We now know from events over the past two weeks what the sovereign debt crisis in Europe has touched off: continuous rise of bond yields of Italian sovereign short term debt, owing to the lack of investor confidence; Spain’s 10 year bond yield has overtaken that of Italy; the lack of strong demand for German 10 year bonds; followed by the unexpected rise in yields on the German benchmark above the UK 10-year Gilt. It’s the first time that has happened since 2009. In the past two weeks we also have witnessed the downgrading of Hungary’s sovereign rating to sub-investment grade (Ba1) alongside Belgium’s debt. Moody’s has raised doubts about the long term viability of France’s triple A sovereign rating. Perhaps more is to come.

Just how Europehas come to this may be understood from the inherent weakness of the agreements between members of the European Union. The euro is used as the common currency, while member countries run their own sovereign fiscal policies. The difference in spreads among yields on sovereign debt is reflected in the credit rating differences among the members. The deterioration in credit ratings of certain members would therefore result in larger differences in sovereign bond yields. Larger bond yields run the risk of spiral increases of those yields so that the sovereign countries may not be able to sustain the ability to repay. The risk of default has increased rapidly in the accelerating deterioration in sovereign debt yields in the last few weeks.

The British way of solving its sovereign debt problem in the 1980s is worth mentioning here. The economic austerity policies of the Conservative government of the era really hurt. It must not be forgotten, however that the austerity programs in the UKresulted in people feeling that they should make an effort to find a proper job, rather than to rely on the welfare state. But more importantly, the huge privatization program in the UKhad accumulated a large reserve, enough to pay the debts.

The other way of resolving the debt problem, which the European nations seem to be favoring, is (for the ECB) to print more money and perhaps to increase taxes to pay the unemployed and support the welfare state. This will work to save a lot of votes in the short term. It will however, inevitably result in spiraling inflation that will run out of control in the following term of government. The ECB is now saying the danger of taking this route would be unbearable, in no uncertain terms.

While the debate will never end as to which way the euro zone should go, we now also know that Mr Draghi was right when he asked at the European Banking Congress in Frankfurt why the European Financial Stability Facility, which had been launched some 18 months earlier, has yet to be implemented.

The message was loud and clear. There can be no support for the European Financial Stability Facility, unless there is a concrete guarantee from sovereign countries for repayment. Those guarantees could have been forthcoming without a lot of difficulties 18 months ago. Now it looks as if only sufficient backing with assets can support investor confidence.

It is of course for the sovereign nations to decide whether a privatization program should go ahead. It is of course also for the sovereign governments to decide whether such privatization should be open only for its nationals or also for foreign investors. As stated at the beginning of this opinion, the competition law on merger control in the European Union tends to create more problems for major merger and acquisition of large enterprises from foreign companies. However, privatization of a minor stake is relatively painless, so that responsibility for repaying the sovereign debts would not fall indiscriminately on the tax payers, but shared by those who have the ability and money to pay.

Again, the attitude to restrict merger and acquisition, while important to protect sovereignty, is perhaps outdated. If we are talking about only a small percentage of the shareholding of state-owned enterprises that are to be open to investment from the public.

It is now high time for the members of the European Union to re-visit its competition law regime.

The author is a Hong Kongbarrister and chairman of the Hong Kong Bar’s Special Committee on Planning and Policy.