Posted on 09/01/2007 1:16:55 AM PDT by bruinbirdman
The troubled GDF-Suez merger highlights the extent of French state ownership
ONE of the first things Nicolas Sarkozy did upon taking office as president of France in May was to visit the headquarters of Airbus, in Toulouse. His aim was to broker a deal with Angela Merkel, Germany's chancellor, to simplify the odd bicephalic leadership structure at Airbus's parent company, EADS. This push from Mr Sarzoky led to a more sensible regime, with a Frenchman running EADS and a German at the controls of Airbus. After a holiday in America, Mr Sarkozy was this week keen to display his determination to bring about another tricky rapprochement: between French business and the Anglo-Saxon model of global capitalism.
On August 30th he became the first ruling head of state to address the Medef, France's leading business organisation. Having already pushed through some labour-market reforms, Mr Sarkozy used his speech to the bosses to lay out the second stage of his economic reforms, including a wholesale review of tax and social-security contributions, with the aim of further loosening the labour market and getting unemployment down from 8% today to 5% by 2012. Also this week he told French ambassadors to go out and tell the world that he is determined to modernise France and efface its image as rigid and protectionist.
Even as Mr Sarkozy outlined his march towards a more liberal economy, however, other events conspired to emphasise how far France has to go in one respect—the state's hold on industry. The president was called upon this week to smooth the path of the long-stalled merger between state-owned Gaz de France (GDF) and Suez, a private Franco-Belgian energy and environment group. The bosses of GDF and Suez have been planning the tie-up for five years, but powerful unions at GDF persuaded politicians to obstruct the deal.
Official attitudes changed when Enel, an Italian energy firm, made a hostile bid for Suez. Dominique de Villepin, the prime minister at the time and Mr Sarkozy's political arch-rival, then embraced the Suez-GDF merger as a means of fending off a foreign predator. But a procedural hitch delayed the deal late last year, and it got caught up in the general paralysis of the presidential-election campaign.
Now the deal is back on. But there is a twist. Mr Sarkozy wants Suez to shed its environment division to bring the two firms to an equal size, thus preserving the size of the state's stake in the merged business. He wants to distance himself from a project cooked up by his old political enemy, it seems, while also limiting the state's interest to energy and avoiding a dilution of its stake. Suez is reluctant to play along. But if it backs out, Enel will step in again.
So Mr Sarkozy finds himself having to sort out another tricky industrial problem, and hoping to repeat his success at Airbus. It is no wonder that French political leaders get sucked into such matters: the tentacles of the French state stretch deep into the country's industry. The nationalising state and its successor, the privatising state, have been succeeded by the blander-sounding shareholding state. The French approach to privatisation has been to convert state firms into proper limited and listed companies, but with the state keeping big slices of the shares in key firms, and small holdings in others.
As a result, despite two waves of privatisation in the late 1980s and mid-1990s (returning to private hands 36 firms and banks nationalised under the socialists in 1982), the size of French state-owned enterprises, relative to the economy, is still the highest in western Europe (see chart). Include businesses where the state owns minority stakes above 10%, and no less than one-tenth of the French economy is partly state-owned. The value of state-owned enterprises' assets is around $400 billion, compared with just over $30 billion in Britain. State-owned firms employ about 5% of the total workforce, compared with less than 1% in Britain. Indeed, with 1.3m workers, the state sector in France employs some 200,000 more people today than after the great wave of post-war nationalisations in 1945-46.
A special agency, the APE (Agence des participations de l'Etat), oversees holdings in some 70 of the more important firms, such as France Telecom, Renault and Air France. The state is particularly strong in the defence and aerospace industry, holding key stakes in EADS, Safran/Snecma (an odd jet-engine/computing hybrid) and Thales, a defence-electronics firm.
Even below the radar of the APE, state-owned banks and firms have small stakes in other companies. Gérard Mestrallet, the boss of Suez, cunningly points out that if such state-owned bodies transferred their holdings in Suez (which amount to just under 7%) to GDF, the gap in the two companies' valuations would be closed, solving Mr Sarkozy's problem. Mr Mestrallet is anxious to get some movement, because clearance for the merger from the European Union expires at the end of September. It is an indication of the fraught nature of the political-industrial complex in France that it cannot even keep up with the slow pace in Brussels.
Look! I can balance an Airbus on my finger!
A French and German get-together is a bit like the annual convention of the Hatfields and the McCoys.
Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.