French Disconnection: An Englishman Speaks
In the unlikely event that the Italian Prime Minister Silvio Berlusconi had visited France last week, he may very well have appreciated the opportunity to riot in the streets of Paris. His frustrations over the most recent episode of petty French protectionism are clear, and should be shared by anybody with even a remote interest in the future of EU as a single liberalised market.
Their latest political move grew from an idea born last summer. As rumours began to circulate about potential bids from US giants Pepsi and Wal-Mart for French stalwarts Danone and Carrefour, French politicians immediately puffed up their chests, started wagging their fingers and began bellowing all sorts of guttural statements of economic patriotism. Appalled at the prospect of French industrial gems hoisting American flags, French Prime Minister Dominique de Villepin drew up proposals that would ultimately legitimise a new defence strategy to fend off hostile take over bids, and shield the country’s prize assets from foreign investors.
The law was finally adopted by the French parliament in the last few weeks, and affords domestic companies what is known as the ‘poison pill defence’. In a nutshell, companies subjected to a hostile bid are now able to issue warrants to existing shareholders. These warrants are convertible into shares at a discounted price, hence diluting the number of shares in issue and making any offer far more expensive.
Parliamentary approval conveniently arrives at a time when the French government are frantically trying to beat off a number of very large, hostile advances, even on non-French companies with sizeable French subsidiaries. An inquiry has already been launched by the European Commission which gives France until Friday 7th April to explain how its rash merger of state-controlled Gaz de France with utility company Suez is anything other than a move to thwart a takeover of Suez by Italian rival Enel.
'Not only could Paris’s actions be setting an atrocious example, it is a short-sighted stance which is simply not in the interest of free trade in Europe.'
The French concern is that they find themselves in a situation where vital and sensitive industries are owned by foreign companies with links to the governments of foreign states. They also argue that domestic industries require protection in order to avoid valuable jobs and operations moving overseas. A thinly-veiled attempt to gain popularity in time for the forthcoming presidential and parliamentary election in 2007?
Many observers on the EU landscape are worried that protectionist moves by one of the leading states of the European Union is damaging to Europe. Not only could Paris’s actions be setting an atrocious example for other member states, it is a short-sighted stance which is simply not in the interest of free trade in Europe.
In the wake of Enel’s frustrated bid for Suez, Adolfo Urso (Italian deputy Industry Minister) spoke on behalf of his nation, “Sadly, we must once again note how France is showing itself to be hostile to Europe” . He added that Europe risked taking “various steps backward” if important decision makers within its community show such a lack of faith in economic liberalisation and insist on advocating economic patriotism.
'Is French economic policy intent on sowing the seeds of its own destruction?'
The French behaviour is interesting as it holds at its core somewhat of a paradox. It is a nation which currently relies heavily on foreign investment, arguably more so than any of its neighbours, and now runs a very real risk of damaging this dynamic. Their reputation for protectionism could easily dissuade future overseas capital heading to France and could also make it difficult for French companies to invest abroad. Surely not a welcome phenomenon given that the flow of investment into Europe has been drying up of late in favour of Eastern Europe and Asia.
Is French economic policy intent on sowing the seeds of its own destruction? If parliament’s recent decision to introduce the First Employment Contract is anything to go by, then perhaps. The new law has tampered with the strong job securities that French workers have enjoyed for decades by enabling employers to hire and fire young workers. The furore and rioting which has ensued portrays a nation afraid, and is a poignant reflection of its current state of health.
It seems the French must make up their mind. Yet rather than join Blair and his friends in their battle to complete the single market and put an end to international trade barriers, the French president would rather sulk at the fact the EU is no longer his baby. His frustration at the growing influence of the UK, compared to the diminishing influence of France, has been simmering for 8 years now. In a remarkably childish protest, Mr Chirac stormed out of an EU summit last week, because the speaker decided to address his audience in English rather than French.
Perhaps one of the most interesting observations regarding France’s recent behaviour is that nobody appears to be really surprised by it. History bears testament to a lifetime of petulant and churlish behaviour from our Gallic neighbours. It’s inherent in their very nature to be awkward and irritating. Would we, in fact, be more surprised had they put their protectionist instincts aside and actually co-operated on ways to boost Europe’s economy and strength?