A Rollback in France?
France's plan to take a 31% stake in troubled French engineering giant Alstom (ALS ) underscores the center-right government's ambivalence about laissez-faire capitalism. The Aug. 5 decision, which European Union regulators promise to scrutinize closely, calls for the government to acquire $339 million worth of Alstom shares through a planned capital increase, while providing an additional $226 million in loans to the company.
At first blush, the bailout seems out of character for the government of Prime Minister Jean-Pierre Raffarin, which has called for curbs on public spending and continued privatization of partially state-held companies such as Air France and auto maker Renault. But with unemployment creeping up to 9.5%, the government was swayed by warnings from Alstom's banks that the company would go bankrupt without state aid, endangering more than 20,000 French jobs. Alstom lost $1.6 billion last year and is $5.5 billion in debt.
Similarly, the government recently approved a $10 billion credit line to heavily indebted France Télécom (FTE ) And it has not demanded repayment of an emergency loan to computer maker Groupe Bull, due in June. Raffarin also has scaled back plans to trim the civil service, which accounts for one in five French jobs. With 60,000 public employees set to retire next year, he initially planned to leave half those positions vacant. But, facing protests from teachers and health-care workers, Raffarin now plans to eliminate only about 5,000 jobs.
By Carol Matlack in Paris
Edited by Rose Brady