No matter that the U.S. Justice Department and Canadian regulators approved the deal with only minor concessions. This wasn't simply a new laissez-faire approach from a Republican administration, either. Many of the Justice Department lawyers reviewing the case were Clinton-era holdovers. Now Attorney General John Ashcroft has made a direct plea to the EC to salvage the deal, a move immediately rebuffed by the EC on grounds that it doesn't consider "political" influence.

But what about simple economics? The Justice Department concluded that GE and Honeywell were direct competitors in surprisingly few businesses. The Europeans appear to have raised the most strenuous objections over GE's powerful aircraft-financing and -leasing division and Honeywell's high-tech avionics segment, which makes safety devices such as ground-warning systems. But in neither of these areas do GE and Honeywell compete. This isn't the kind of "horizontal" merger and elimination of a competitor that the antitrust laws were meant to prevent.

The Europeans, however, have purportedly expressed fears that once GE owned Honeywell, its leasing and financing arm would buy only Honeywell products, to the exclusion of European competitors such as Rolls-Royce of Britain and Thales of France, a distant rival to Honeywell's avionics unit. But this is "vertical" integration, and both economics and experience have shown that if companies favor their own suppliers, they soon succumb to other competitors who seek the highest quality goods and services at the best price. The only exception is existing monopolies that seek to extend their dominance, as Microsoft (MSFT) was accused of doing in the browser market. GE is a huge company, but unlike Microsoft, no one has yet claimed that it's a monopoly.

What's really going on here? Remember the European opposition to the WorldCom (WCOM)-Sprint (FON) merger, which effectively scuttled that deal? European companies like Deutsche Telekom (DT) and France Telecom (FTE) didn't want more competition from a rival strong in both Internet data transmission (WorldCom) and wireless (Sprint) even though neither was a serious competitor to the other in either business. The Europeans seem to be especially touchy about telecommunications and aerospace — witness the billions they've poured into Airbus Industrie over the years. The EC barely approved the Boeing (BA)-McDonald-Douglas merger a few years ago, and you can bet that was because the merger eliminated one of Airbus's competitiors. This is old-fashioned nationalistic protectionism, pure and simple.

Readers of this column know that I'm something of a hawk on the subject of antitrust enforcement, having raised concerns about Microsoft's behavior and such combinations as JDS Uniphase (JDSU) and SDL (see story). But the EC's opposition to GE's acquisition of Honeywell is an affront to economics, fair play, free trade and the global economy.

Ironically, as I've noted before, the immediate stock-market reaction to a failed merger may be positive. GE shares rose on news the deal was in trouble because there will be a short-term boost to earnings. The worst scenario for GE investors would be for GE to complete the merger, but on terms that eliminate all the long-term advantages of the deal. (I recommended GE in this column after the deal was first announced.) Honeywell shares plunged, but may recover on further takeover speculation. (I never recommend investing on such speculation.) I seriously doubt that the EC will have any reservations should a European bidder emerge.

* * * * * * * * *

Many of you wrote to share your frustrations with analysts after I blasted them in my column of two weeks ago. Now Congress has taken up the issue in hearings. The conflicts of interest are even more blatant than I suspected.

Analysts are being paid, as the New York Times editorialized, "to be bullish rather than accurate." Evidence has surfaced of the blatant use of positive recommendations to attract underwriting business; of negative recommendations to retaliate against companies that chose other underwriters; of analysts being paid out of underwriting proceeds; of analysts whispering to favored clients and their own firms to sell even as they told the public to buy; and of analysts trading in their own accounts in a manner inconsistent with their public recommendations.

Now the industry is coming out with some voluntary guidelines to curb these abuses. This strikes me as too little and too late. Though much more evidence needs to be examined, something much more stringent may be needed for what to my eye looks like old-fashioned fraud.

-- By James B. Stewart

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