6th March 2006.
JEAN-Baptiste Colbert, the 17th century French finance minister who made a name for himself with his destructive embrace of protectionism and mercantilism, presides over Paris once more. The past few weeks have seen a fresh tide of protectionist sentiment, led by France, sweep the continent; it is a defining moment in the long but now inevitable demise of the European Union (EU). The commitment of France and the other great continental economic powers to free trade and the single market has been revealed as skin deep; when what they perceive as the national interest is at stake they ditch it entirely, leaving the EU dream in tatters.
Re-nationalisation by stealth and the worst kind of xenophobic industrial policy is once more the name of the game in the euro zone, thanks largely (but not solely) to President Jacques Chirac and his Prime Minister, Dominique de Villepin. In a deal brokered by both last week, Suez SA, a private company, will merge with gas giant Gaz de France (GdF), a state-controlled company; the marriage was hastily concocted purely to block a likely hostile takeover bid for Suez from Italy’s Enel – and to create a so-called new French “champion”. The deal has outraged the Italian government, with Giulio Tremonti, its finance minister, going as far as to raise the spectre of 1914. That is Italian hyperbole; but we might just have lived through the week European integration died.
Though the French government’s stake will be reduced to 36% in the merged company, it will retain a blocking vote, protecting the new group against further takeover threats. The same could be about to happen to listed French company Bouygues, should the government opt to merge it with Areva, a move that would create a French counterpart to the partnerships between construction firms and nuclear power specialists in Great Britain and the United States. Thus has France resorted to the interventionist industrial policy of old, with M de Villepin even boasting that he has given France “a second major player in energy alongside Electricite de France, bringing new strength to our country’s global industrial mission”.
But Paris is not the only villain in this sorry tale, just the star turn. A series of protectionist and interventionist moves have rolled out across Europe since the beginning of this year, moves which threaten the very survival of Europe’s single market: Luxembourg is bringing in a new wave of takeover legislation in an attempt to thwart Mittal Steel’s bid for Arcelor; the Spanish government wants to change the law to be able to block a hostile E29.1bn bid by the German power giant Eon for Endesa, the Spanish utility; in Italy, Romano Prodi, former President of the European Commission who hopes to unseat Prime Minister Silvio Berlusconi in the April elections, has threatened to prevent any future French takeovers if he wins; and even supposedly free market Poland is getting in on the act, moving to block Italian bank UniCredit’s bid for local Bank BPH because it would mean the merger of two Polish subsidiaries and job cuts. Governments are also abusing free-trade agreements and even commercial contracts whenever they can, as Britain recently discovered the hard way with the Interconnector pipeline which runs between Britain, Zeebrugge and a gas-transportation hub in Belgium. Even after spot prices had quadrupled in Britain, precious little gas flowed through the pipe because it was in storage in the Netherlands and Germany as governments hoarded supplies for the winter, defying market rules. Remarkably, one of the few countries not to have joined in to the new protectionist frenzy has been Britain, which boasts a uniquely enlightened attitude to globalisation and has embraced foreign ownership and foreign bosses at the helm of the most blue-chip of British companies. Prime Minister Tony Blair and his Chancellor, Gordon Brown, deserve credit for keeping the flickering flame of free trade alive in at least one European capital.
Elsewhere in Europe it is on life support. European governments have until 20 May to implement the EU’s watered-down takeover directive; it looks increasingly likely that the law will have almost no impact on facilitating cross-border takeovers. First proposed way back in 1989 and blocked at every turn since, it was meant to facilitate hostile takeovers by making it harder for company managers to put in place poison pills and by cracking down on shares with multiple voting rights, which allow minority shareholders to control a company. The directive was finally passed after 14 years of deliberation – but only after it was made largely toothless.
Countries are allowed to opt out of the directive’s key provisions; naturally, more and more of them are doing so. Only Latvia, Lithuania and Greece have so far decided to apply all the provisions to make takeovers easier; others are doing their best to cosset their companies to protect them from takeover. Some are even choosing to opt-out of the central clause which states that companies facing a hostile bid must ask shareholders for permission before launching “poison pills” or other defences.
Global investors, most of whom manage their international operations from free-trade London, and overseas commentators who brook no setbacks in the onward march of the EU have failed to understand the true extent and significance of Europe’s shift towards economic nationalism. They are prone to dismiss the trend as the predictable shenanigans of continental politicians and stick to the consensus view that the euro zone is improving and on the gradual path to reform. In fact, the march to mercantilism is likely to get worse, not better. As the European Commission already laments, once faithfully europhile member states are now in open rebellion, ignoring the diktats of Brussels and pursuing what they consider to be their own narrow self-interest. If this contamination spreads then the euro and even the single market could be fatally weakened. The current resurgence of protectionism is no passing fad but the only way an economically illiterate and parochial political establishment knows how to respond to the “No” votes against the European constitution last year. This is especially true of France where, regardless of who is power when President Chirac is finally removed next year, the country’s economic policy will remain deeply protectionist. To understand the forces driving France back to economic nationalism it is important to understand how radically many of France’s private companies have changed over the past decade – and how much these changes have been resented by the country’s governing elite and the population at large.
As we explain elsewhere in this week’s edition, roughly two-thirds of the E100bn worth of recently privatised French shares ended up in the hands of foreign investors, mainly institutions. Ordinarily, that is not something governments should worry about; thanks to globalisation and the abolition of capital controls, pension funds and investment houses are increasingly diversifying their portfolios and investing where the returns are the highest, which is the way things should be. The fact that foreigners, including many Americans (perish the thought!), hold so many shares in French companies happened for two reasons: first (and more prosaic), France’s failure to create modern private pension provisions means there are insufficient French funds to buy every French share; second (and more encouraging), many French multinationals have done well in recent years thanks to their embrace of globalisation, attracting international investors in the process.
A few years ago, it would have been anathema for haughty French chief executives to travel to London to face international investors – or to take it in turns to be grilled by 24-hour English-language business channels about why they have failed to meet their earnings estimates. Today, it is routine. Of course, there has not been complete convergence between Anglo-American corporate structures and management styles and those of the continent; but the gap has closed thanks to the integration of global capital markets. When chief executives have to meet the dictates of the market they are less likely to listen to the demands of the politicians. This is not popular in Paris, especially when another trend is taken into account: European companies have outsourced a lot of their activities and shifted their investments outside the euro zone.
They have expanded massively in the emerging markets of Eastern Europe and Asia, often more so than their sleepier British counterparts. French companies have become much more international, going as far as to adopt English as their official corporate language, hiring foreign executives and pushing through huge cultural changes. Despite all the restrictions and red tape, many euro zone multinationals have cut their costs and restructured their business. Corporate profits have soared even though EU economic growth has been mediocre at best. But while corporate France was pulling itself up by its bootstraps to compete in a ferocious global economy, the French political establishment was aghast.
The old structures it knew, understood and controlled were eroding; it was becoming harder for the traditional old boy networks to operate. But it was not just the enarques (the graduates of France’s elite civil service school), that resented the changes; ordinary voters, who are fed constant anti-market and pro-socialist propaganda in schools, universities, newspapers and on broadcast media, also do not like what is happening. They are right, of course, to be angry about high unemployment, the cost of welfare dependency and the lack of opportunity for the young people; needless to say, however, they turned their anger to the wrong targets – business and supposedly ultra-liberal economic policies – rather than flawed social-democratic policies of the politicians.
All of this came to a head in the French referendum on the European constitution last year. Unlike British euro-sceptics, who tend to be free-marketeers and supporters of free trade, French euro-sceptics are a motley crew of Trotskyites, Marxists, Maoists, greens, socialists and fascists. The referendum was widely seen as a referendum on globalisation; in response to the resounding No vote, President Chirac decided that a significant shift back to economic dirigisme was in order.
The issue of foreign takeovers started to be hotly debated last summer when M de Villepin announced a new “economic patriotism” after it emerged that America’s PepsiCo was considering a bid for French food group Danone. It was just the start: by year-end a decree was issued stating that foreign investors who want to take a significant stake in French companies operating in 11 supposedly sensitive sectors, from defence to cryptology, must seek the approval of French authorities first. France’s new official doctrine of economic patriotism had become a reality.
It amounts to little more than reheated Colbertism, an essentially chauvinist philosophy mixed with the mercantilist belief that, when two countries trade, one of them must be a loser. This world view sees foreign takeovers as warfare by other means – and thwarting them a matter of national economic security. The European establishment still believes that if shuts its eyes for long enough – and wishes hard enough – globalisation would eventually go away. No wonder Europe is a continent in economic, cultural and intellectual decline – and that is Europe, not globalisation, that is slowly fading away.
www.thebusinessonline.com . . .
JEAN-Baptiste Colbert, the 17th century French finance minister who made a name for himself with his destructive embrace of protectionism and mercantilism, presides over Paris once more. The past few weeks have seen a fresh tide of protectionist sentiment, led by France, sweep the continent; it is a defining moment in the long but now inevitable demise of the European Union (EU). The commitment of France and the other great continental economic powers to free trade and the single market has been revealed as skin deep; when what they perceive as the national interest is at stake they ditch it entirely, leaving the EU dream in tatters.
Re-nationalisation by stealth and the worst kind of xenophobic industrial policy is once more the name of the game in the euro zone, thanks largely (but not solely) to President Jacques Chirac and his Prime Minister, Dominique de Villepin. In a deal brokered by both last week, Suez SA, a private company, will merge with gas giant Gaz de France (GdF), a state-controlled company; the marriage was hastily concocted purely to block a likely hostile takeover bid for Suez from Italy’s Enel – and to create a so-called new French “champion”. The deal has outraged the Italian government, with Giulio Tremonti, its finance minister, going as far as to raise the spectre of 1914. That is Italian hyperbole; but we might just have lived through the week European integration died.
Though the French government’s stake will be reduced to 36% in the merged company, it will retain a blocking vote, protecting the new group against further takeover threats. The same could be about to happen to listed French company Bouygues, should the government opt to merge it with Areva, a move that would create a French counterpart to the partnerships between construction firms and nuclear power specialists in Great Britain and the United States. Thus has France resorted to the interventionist industrial policy of old, with M de Villepin even boasting that he has given France “a second major player in energy alongside Electricite de France, bringing new strength to our country’s global industrial mission”.
But Paris is not the only villain in this sorry tale, just the star turn. A series of protectionist and interventionist moves have rolled out across Europe since the beginning of this year, moves which threaten the very survival of Europe’s single market: Luxembourg is bringing in a new wave of takeover legislation in an attempt to thwart Mittal Steel’s bid for Arcelor; the Spanish government wants to change the law to be able to block a hostile E29.1bn bid by the German power giant Eon for Endesa, the Spanish utility; in Italy, Romano Prodi, former President of the European Commission who hopes to unseat Prime Minister Silvio Berlusconi in the April elections, has threatened to prevent any future French takeovers if he wins; and even supposedly free market Poland is getting in on the act, moving to block Italian bank UniCredit’s bid for local Bank BPH because it would mean the merger of two Polish subsidiaries and job cuts. Governments are also abusing free-trade agreements and even commercial contracts whenever they can, as Britain recently discovered the hard way with the Interconnector pipeline which runs between Britain, Zeebrugge and a gas-transportation hub in Belgium. Even after spot prices had quadrupled in Britain, precious little gas flowed through the pipe because it was in storage in the Netherlands and Germany as governments hoarded supplies for the winter, defying market rules. Remarkably, one of the few countries not to have joined in to the new protectionist frenzy has been Britain, which boasts a uniquely enlightened attitude to globalisation and has embraced foreign ownership and foreign bosses at the helm of the most blue-chip of British companies. Prime Minister Tony Blair and his Chancellor, Gordon Brown, deserve credit for keeping the flickering flame of free trade alive in at least one European capital.
Elsewhere in Europe it is on life support. European governments have until 20 May to implement the EU’s watered-down takeover directive; it looks increasingly likely that the law will have almost no impact on facilitating cross-border takeovers. First proposed way back in 1989 and blocked at every turn since, it was meant to facilitate hostile takeovers by making it harder for company managers to put in place poison pills and by cracking down on shares with multiple voting rights, which allow minority shareholders to control a company. The directive was finally passed after 14 years of deliberation – but only after it was made largely toothless.
Countries are allowed to opt out of the directive’s key provisions; naturally, more and more of them are doing so. Only Latvia, Lithuania and Greece have so far decided to apply all the provisions to make takeovers easier; others are doing their best to cosset their companies to protect them from takeover. Some are even choosing to opt-out of the central clause which states that companies facing a hostile bid must ask shareholders for permission before launching “poison pills” or other defences.
Global investors, most of whom manage their international operations from free-trade London, and overseas commentators who brook no setbacks in the onward march of the EU have failed to understand the true extent and significance of Europe’s shift towards economic nationalism. They are prone to dismiss the trend as the predictable shenanigans of continental politicians and stick to the consensus view that the euro zone is improving and on the gradual path to reform. In fact, the march to mercantilism is likely to get worse, not better. As the European Commission already laments, once faithfully europhile member states are now in open rebellion, ignoring the diktats of Brussels and pursuing what they consider to be their own narrow self-interest. If this contamination spreads then the euro and even the single market could be fatally weakened. The current resurgence of protectionism is no passing fad but the only way an economically illiterate and parochial political establishment knows how to respond to the “No” votes against the European constitution last year. This is especially true of France where, regardless of who is power when President Chirac is finally removed next year, the country’s economic policy will remain deeply protectionist. To understand the forces driving France back to economic nationalism it is important to understand how radically many of France’s private companies have changed over the past decade – and how much these changes have been resented by the country’s governing elite and the population at large.
As we explain elsewhere in this week’s edition, roughly two-thirds of the E100bn worth of recently privatised French shares ended up in the hands of foreign investors, mainly institutions. Ordinarily, that is not something governments should worry about; thanks to globalisation and the abolition of capital controls, pension funds and investment houses are increasingly diversifying their portfolios and investing where the returns are the highest, which is the way things should be. The fact that foreigners, including many Americans (perish the thought!), hold so many shares in French companies happened for two reasons: first (and more prosaic), France’s failure to create modern private pension provisions means there are insufficient French funds to buy every French share; second (and more encouraging), many French multinationals have done well in recent years thanks to their embrace of globalisation, attracting international investors in the process.
A few years ago, it would have been anathema for haughty French chief executives to travel to London to face international investors – or to take it in turns to be grilled by 24-hour English-language business channels about why they have failed to meet their earnings estimates. Today, it is routine. Of course, there has not been complete convergence between Anglo-American corporate structures and management styles and those of the continent; but the gap has closed thanks to the integration of global capital markets. When chief executives have to meet the dictates of the market they are less likely to listen to the demands of the politicians. This is not popular in Paris, especially when another trend is taken into account: European companies have outsourced a lot of their activities and shifted their investments outside the euro zone.
They have expanded massively in the emerging markets of Eastern Europe and Asia, often more so than their sleepier British counterparts. French companies have become much more international, going as far as to adopt English as their official corporate language, hiring foreign executives and pushing through huge cultural changes. Despite all the restrictions and red tape, many euro zone multinationals have cut their costs and restructured their business. Corporate profits have soared even though EU economic growth has been mediocre at best. But while corporate France was pulling itself up by its bootstraps to compete in a ferocious global economy, the French political establishment was aghast.
The old structures it knew, understood and controlled were eroding; it was becoming harder for the traditional old boy networks to operate. But it was not just the enarques (the graduates of France’s elite civil service school), that resented the changes; ordinary voters, who are fed constant anti-market and pro-socialist propaganda in schools, universities, newspapers and on broadcast media, also do not like what is happening. They are right, of course, to be angry about high unemployment, the cost of welfare dependency and the lack of opportunity for the young people; needless to say, however, they turned their anger to the wrong targets – business and supposedly ultra-liberal economic policies – rather than flawed social-democratic policies of the politicians.
All of this came to a head in the French referendum on the European constitution last year. Unlike British euro-sceptics, who tend to be free-marketeers and supporters of free trade, French euro-sceptics are a motley crew of Trotskyites, Marxists, Maoists, greens, socialists and fascists. The referendum was widely seen as a referendum on globalisation; in response to the resounding No vote, President Chirac decided that a significant shift back to economic dirigisme was in order.
The issue of foreign takeovers started to be hotly debated last summer when M de Villepin announced a new “economic patriotism” after it emerged that America’s PepsiCo was considering a bid for French food group Danone. It was just the start: by year-end a decree was issued stating that foreign investors who want to take a significant stake in French companies operating in 11 supposedly sensitive sectors, from defence to cryptology, must seek the approval of French authorities first. France’s new official doctrine of economic patriotism had become a reality.
It amounts to little more than reheated Colbertism, an essentially chauvinist philosophy mixed with the mercantilist belief that, when two countries trade, one of them must be a loser. This world view sees foreign takeovers as warfare by other means – and thwarting them a matter of national economic security. The European establishment still believes that if shuts its eyes for long enough – and wishes hard enough – globalisation would eventually go away. No wonder Europe is a continent in economic, cultural and intellectual decline – and that is Europe, not globalisation, that is slowly fading away.
www.thebusinessonline.com . . .
