Stress Testing: Incorporating “Resilience” into EU Merger Control

In her September 2024 Mission Letter, Commission President von der Leyen directed Executive Vice President Teresa Ribera to develop a “new approach to competition policy” to “reflect the growing importance of resilience in the face of geopolitical and other threats to supply chains”.  Specifically in relation to merger control, she instructed EVP Ribera to review the Commission’s horizontal and non-horizontal merger guidelines (together, the Merger Guidelines) to “give adequate weight to the European economy’s more acute needs in respect of resilience, efficiency and innovation, the time horizons and investment intensity of competition in certain strategic sectors, and the changed defence and security environment.”

With the Merger Guidelines review well underway, EVP Ribera promised that “Our revised [Merger] Guidelines will provide clear and upfront guidance, including . . . on mergers that may support competitiveness, innovation, and resilience.”  The Directorate-General for Competition’s (DG COMP’s) 2025 consultation on the Merger Guidelines (the Consultation) provided no indication of how the Commission plans to meet this commitment.   Many Consultation responses called for a new approach to efficiencies, especially in relation to innovation and sustainability. 

But what about resilience?  The current Merger Guidelines don’t mention resilience.  Some Consultation responses advocated treating resilience as an efficiency (e.g., the Information Technology and Innovation Foundation, or ITIF).  But there are difficulties in this approach.  For example, even if resilience benefits could meet the standards for an “efficiency defence,” this framework wouldn’t cover potential resilience harms.

A more holistic approach could involve assessing a merger’s potential effects on resilience – positive or negative -- through counterfactuals in which those “geopolitical and other threats” materialise.  The Commission has used counterfactuals in the past, though never to evaluate a merger’s effect on resilience.  To assess mergers’ potential resilience harms and benefits under the EU Merger Regulation (the EUMR), DG COMP would need to develop a framework to identify potentially relevant counterfactuals and the merger-specific harms and benefits that could materialize in those counterfactual scenarios.    

Counterfactuals, Dynamic Competition and Resilience

Merger review, by definition, entails predicting a merger’s competitive effects against a counterfactual, i.e., the competitive conditions absent the merger. Merger control traditionally took a static approach, predicting mergers’ competitive effects assuming no change to the structure of competition other than the merger itself.  In recent years, DG COMP has increasingly focused on dynamic effects, taking account of foreseeable changes in parameters such as innovation, quality, market entry and the parties’ own capabilities. Indeed, DG COMP has commissioned a study on dynamic competition in connection with the Merger Guidelines review.  Thus, the revised Merger Guidelines can be expected to take better account of foreseeable changes in competitive conditions, at least with respect to endogenous changes directly impacting the relevant markets and the parties themselves.

As EVP Ribera’s Mission Letter indicates, however, changes to competitive conditions may also emerge from “geopolitical and other threats.”  How can DG COMP take account of such exogenous shocks, as opposed to endogenous market changes reflected in a dynamic competition analysis?   The Covid-19 pandemic posed such an external challenge for DG COMP and other competition authorities.  In its 2020 annual report, the Commission stressed that “a robust competition policy in the EU is more important than ever to contribute to economic dynamism, essential for a faster recovery.”  However, DG COMP did not issue specific guidance on how it would incorporate the pandemic’s impact into its EUMR assessments.

In its April 2020 guidance on merger assessments during the pandemic, on the other hand, the UK Competition and Markets Authority (CMA) noted that:

“the impacts of coronavirus will be factored into the substantive assessment of a merger where appropriate. It is clear that, at least in the short-term, there will be a substantial impact across the UK as a result of changes in market conditions. There remains considerable uncertainty about the extent and duration of this impact. A merger control investigation typically looks beyond the short-term and considers what lasting structural impacts a merger might have on the markets at issue. Even significant short-term industry-wide economic shocks may not be sufficient, in themselves, to override competition concerns that a permanent structural change in the market brought about by a merger could raise. The CMA . . . will carefully consider the available evidence in relation to the possible impacts of coronavirus on competition in each case.”

The CMA’s guidance seemed to anticipate that merging parties would argue that the pandemic’s market impact would justify approval of mergers that would otherwise be prohibited.  Such arguments have sometimes been successful; e.g., the Commission’s 2013 Aegean/Olympic II approval, based in part on the Greek economic crisis’ impact on the travel sector. But neither such decisions nor the CMA’s Covid-19 guidance set out an analytical framework to assess how a notified merger might impact the structure of competition differently if potentially relevant economic shocks occur.

Stress-Testing Lessons from the Financial Sector

In the financial services sector, the Great Financial Crisis of 2007-2009 prompted the development of an analytical framework to evaluate the effects of economic shocks.  In a 2021 Executive Summary, the Bank for International Settlements (BIS) noted that “stress tests have become more sophisticated and more entrenched in financial firms’ practices and supervisory requirements . . . Firms have developed improved stress-testing models and assumptions to identify vulnerabilities, correlations between different types of risk and potential future risk exposures throughout a banking organisation. . . . Authorities may also conduct stress tests at times of high financial stress at the national or global level to assess the capacity of the financial sector and individual firms to continue operating during a crisis.”

Stress testing in the financial services sector has a relatively narrow objective (at least in the microprudential context), testing an institution’s capital and liquidity adequacy against specific adverse scenarios.  Even so, stress-testing methodologies vary significantly (as described in a study by the Basel Committee on Banking Supervision (BCBS)). The BCBS noted that “supervisory stress testing exercises are one of the most complex activities [that authorities] conduct on a regular basis.”

Stress-testing methodologies have also been developed and explained in detail by European authorities, including the European Central Bank and the European Banking Authority (EBA).  Developing the EU-wide stress-test methodology for a given year is a multi-step process.  For example, the EBA launched the process to determine the 2025 EU-wide stress-test methodology in July 2024, published the final methodology in November 2024, launched the test in January 2025 and published the results in August 2025.

How might a stress-test model be adapted to consider the potential resilience effects of a merger in the face of adverse scenarios that might impact the structure of competition?  The BIS’ Executive Summary identified three limitations to stress testing in the financial services sector: “stress tests . . . do not predict the probability of [specific] events or scenarios occurring”; ‘judgment [is] required in choosing the scenarios and risks covered in the stress test”; and “the value of a stress test rests heavily on the quality of the data and the modelling approaches”.

These limitations would also need to be addressed in any stress-test framework developed for EUMR purposes.  Several factors, however, could assist in this context.

·       First, there would be no need to identify a comprehensive set of adverse scenarios to be applied across a large number of institutions.  Rather, the need for stress testing in a particular merger review, and the adverse scenario(s) to be considered, would be determined on a case-by-case basis depending on the sectors and parties involved.  For example, stress-testing could be required in a merger of two major global suppliers of critical raw materials, but not in mergers involving non-strategic sectors or parties.

·       Second, the Commission could (and should) build on other work by European institutions on EU economic security.  In their December 2025 communication on economic security, the Commission and High Representative identified six priority high-risk areas for the EU.  Based on the December 2025 common position, the new EU regulation on foreign direct investment screening will set out an agreed list of sectors for which screening will be required.  These and other EU workstreams provide a basis for identifying sectors in which EUMR review could trigger a need for resilience stress testing and the adverse scenarios to be considered.

·       Third, the burden of identifying and collecting the information required for resilience stress-testing would likely be less onerous than in financial sector stress testing.  Resilience stress testing would focus on one or a few scenarios appropriate to the merger in question.  The analysis would not be a stand-alone exercise applied to all in-scope market participants, but would rather be incorporated into the Commission’s normal information collection and analysis procedures being implemented in any case as part of the EUMR review.  Also, as noted, the Commission’s resilience stress-testing could draw on work already being done for EU economic security purposes.  Further, the Commission would not be called upon to assess EU markets’ exposure to geopolitical and other shocks, but only to consider whether the merger under review could materially change that exposure, whether for the worse (as part of a theory of harm) or for the better (as an efficiency benefit).

Thus, there would be no need for DG COMP to undertake the burdensome multi-step process of consulting on, finalizing and conducting a comprehensive resilience stress test each year.  Instead, DG COMP could identify the need for a resilience stress test on a case-by-case basis relying on work done by other Directorates-General and EU institutions, integrate the necessary information collection into its normal procedures and assess the results in cooperation with relevant Directorates-General, as discussed in more detail below.

A Resilience Stress-Test Model for EUMR Review

What would a stress-test model look like in the EUMR context?  As mentioned, such a model should be integrated into the Commission’s existing procedures, build on other EU policies, require a minimum of additional work for the Commission and be as transparent and consistent as possible in the context of case-specific reviews.

Concretely:

·       DG COMP might wish to review the sectors to be considered for resilience stress-testing and potential adverse scenarios to be considered, potentially in cooperation with other Directorates-General, on a periodic basis.  Considering the case-specific nature of EUMR investigations, DG COMP would presumably not need, or want, to develop a comprehensive list of adverse scenarios and stress-test methodologies, but DG COMP could update its internal procedures to reflect the steps discussed below.

·       Upon opening a new Merger Regulation case, the case team would make a preliminary determination whether the case involves potential resilience effects (harmful or beneficial), based in party on whether the case involves sectors or supply chains identified as strategic, such as critical raw materials, artificial intelligence, transportation networks, and food supply chains.  The significance of the parties, taking account of their scale, role in supply chains, innovation etc., would also be relevant.

·       If a case has potential resilience implications, the case team would make a preliminary assessment of relevant counterfactuals.  These could include, for example, a significant and lasting interruption of access to imported goods and services, or a narrowing of geographic markets for the parties’ goods and services, due to geopolitical or other threats such as a war or pandemic.  These counterfactuals would be integrated into the investigation, including by adding questions to DG COMP’s market tests and requests for information to the parties.  The market test might also be broadened to include additional stakeholders.  The relevant counterfactuals would be refined, and additional information collected, as the investigation progresses.

·       A challenge for the analysis will be how to evaluate the likelihood of a resilience-based counterfactual occurring, but the Commission will also face this challenge as it incorporates dynamic competitive effects into the revised Merger Guidelines.

·       Information on resilience-related harms and benefits would be integrated into the case team’s assessment of theories of harm and efficiencies.  As with other efficiencies, it would be up to the parties to put forward evidence of resilience-related efficiencies.  For this purpose, the Commission would not have to develop a new toolset but would apply traditional tools based on the resilience-based counterfactuals as well as the traditional counterfactual of normal competitive conditions with and without the merger.  The Commission’s focus would not be on the general effects of a particular geopolitical or other threat, but rather whether and, if so, how the merger would alter the structure of competition under those counterfactuals. 

·       Although EUMR decisions are always adopted by the College of Commissioners as a whole, DG COMP may need or want to involve directorates-general with relevant expertise at an earlier stage.  For example, in a merger involving supply chains for critical raw materials, a representative from the Directorate-General for Internal Market, Industry, Entrepreneurship and SMEs (DG GROW) could be added to the team; for artificial intelligence and other information technology cases, from the Directorate-General for Communications Networks, Content and Technology (DG CNECT); for transportation cases, from the Directorate-General for Mobility and Transport (DG MOVE); for food-supply cases, from the Directorate-General for Agriculture and Rural Development (DG AGRI), and so on.

·       As mentioned, a proposed merger could conceivably harm the structure of competition in the EU by reducing the EU’s resilience to geopolitical or other threats or increase resilience to such threats.  For example, the Commission might find that under normal competitive conditions downstream customers would have sufficient alternative sources of supply post-merger, but if one or more of such sources were cut off for a protracted period due to geopolitical or other threats, the merger would create a significant impediment to effective competition.  On the other hand, under the same counterfactual a merger might increase EU resilience by creating an EU player with sufficient scale or innovation capabilities to weather the resulting shocks better than they otherwise would.

·       Depending on the results of its resilience-counterfactual analysis, the Commission may in rare cases require remedies to address potential resilience harms.  Considering potential “resilience remedies” would arguably be in line with the 2024 Draghi report’s call for “innovation remedies.”

·       As with stress-tests in the financial sector, DG COMP would need to review and revise any resilience stress-test framework that it develops from time to time.  This review would in particular entail re-assessing the counterfactuals to be assessed and their likelihood of occurrence.  Again, however, DG COMP would not need to conduct this exercise de novo but would instead work together with other relevant directorates-general.

Conclusion

Although many stakeholders participating in DG COMP’s Merger Guideline review have called for an overhaul of the Guidelines’ treatment of efficiencies, especially in relation to innovation and sustainability, how best to incorporate resilience harms and benefits into the EUMR framework remains unclear.  This article proposes developing a stress-testing framework based loosely on the methods developed by financial institutions and supervisory authorities in the wake of the Great Financial Crisis and refined during the Covid-19 pandemic.

There are of course many differences between stress testing financial institutions’ capital and liquidity adequacy in the face of economic shocks and stress testing a notified merger’s effect on European resilience to geopolitical and other threats.  On the other hand, developing a stress-testing framework for mergers would align with many of the EU’s most important policy priorities and could build on work being done in those policy areas.  This exercise would also sit firmly in the Commission’s statutory mandate under the Merger Regulation, to assess mergers’ impact on the structure of competition in Europe.