Commentary: France's Industrial Power Trip

Paris can't stop interfering with the economy -- and that's bad news for Europe

In so many ways, French politician and presidential aspirant Nicolas Sarkozy is a breath of fresh air in French and European politics. At 49, he's a generation younger than most of France's top politicos. In contrast to the default anti-American attitudes of much of the French elite, Sarkozy underscores his admiration of the U.S. He wants to promote entrepreneurship, boost labor flexibility, and cut taxes. But when it comes to interfering in the French economy, Sarkozy is as old-style as they come.

In fact, by the time he leaves the Finance Ministry on Nov. 28 to head France's ruling center-right party, Union for a Popular Movement, Sarkozy will have presided over some of the most intensely interventionist actions since French Socialists nationalized the country's large banks and industrial groups in 1982. From forcefully chaperoning the merger of two French pharmaceutical giants to shoring up ailing engineering group Alstom, Sarkozy has been giving new meaning to the old concept of dirigisme. A great country like France, Sarkozy recently told workers at state-subsidized shipyards, "couldn't just have banks, insurers, and tourism."

Unfortunately, the traditional French sport of picking national champions is not likely to recede once Sarkozy departs the Finance Ministry. True, the headline-craving politician loves to play to the French electoral galleries. But there are other powerful forces behind the latest outbreak of French dirigisme. For one, it's a way to react to the in-your-face political assertiveness coming out of Washington. As President Jacques Chirac tirelessly reminds listeners, Europe has to stand up as a "counterweight" to the U.S. And if Europe wants to compete successfully with the U.S. on the world stage, it requires corporate giants of its own. It's a belief shared by many beyond France. "Europe needs industrial champions," says Europe's incoming Industry Commissioner, Guenter Verheugen of Germany.

The problem is that "European champion" in the French language invariably seems to translate as "French champion." Earlier this year, Paris was so eager to make sure the country could boast a world-class pharmaceutical giant, it forcefully brokered the $70 billion takeover of Franco-German Aventis by Paris-based Sanofi-Synthélabo. Aventis' German board members were ignored. At the same time, the French government made it clear that Switzerland's Novartis would be unwelcome. Similarly, earlier this year, Germany's Siemens was told it wouldn't be a welcome bidder for Alstom's railway operations, which manufacture the renowned high-speed TGV trains. That led German Chancellor Gerhard Schröder to rebuke Paris publicly.

The pace has only intensified. In late October, Sarkozy blessed the coupling of French telephone-equipment maker Sagem with aircraft engine maker Snecma -- a $9 billion merger virtually devoid of industrial logic. Then in early November, news leaked that Franco-German aerospace giant EADS -- with Sarkozy's support -- was examining a takeover of Thales, a French defense-electronics group with $14 billion in sales. Such a deal would make some economic sense, since EADS is overly reliant on its Airbus civil aviation unit for profits and has been looking to bulk up its military business. Yet if the two were to merge, the bigger entity would become largely a French concern, throwing off EADS' delicate French-German balance. Although Sarkozy insists that France would respect the principle of equal French and German control of EADS, the Germans are "furious," according to one banker close to the talks.

Why would France want to risk alienating its key European ally? One reason could be the recent enlargement of the European Union to 25 members, a vast grouping in which the traditional Franco-German motor can no longer get much traction. In the Iraq crisis, for example, Franco-German opposition to the U.S. was not enough to curb the pro-American enthusiasm of Poland and other East European states. As a Nov. 15 editorial in Le Monde put it, "France realized with dread that even allied with Germany, it could find itself overruled in an enlarged Europe." And that, suggests the newspaper that is the mouthpiece of France's elite, is why France is becoming more and more narrowly nationalistic. That doesn't augur well for a powerful new Europe.

By John Rossant

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