The European Union has had one of the toughest years since its creation. With the power struggle that has taken place in Germany, one would hope that the leading countries - who have worked so hard in the last half-century to put this supranational state into place - would start to face reality and comply with the need to change the aging thought process in their economic and political decision making. But once again France has shown its reticence to liberalist ways.
Walter Butler, a venture capitalist and former investment banker at Goldman Sachs, is renewing fear in France as he is trying to take over a state-owned ferry that links southern France with the island of Corsica. It is no secret that the French and their government have always had a strong sense of national pride and all intervention that could harm the national image is bound to draw resentment from the archaic French system.
Butler - considered a financial adventurer by many - is well known for his ability to deal with governments and trade unions to get his way. But his new proposal, which would leave him as the majority shareholder with 40 percent of the companies shares, has not only created a large movement of strikes due to the unavoidable employment cuts but has also stirred national uprising in both the southern city of Marseille and on the island of Corsica.
Many claim that this uprising in the form of strikes is simply part of the daily happenings in France. But the roots of the dilemma are found in the continuation of an ongoing debate in France over allowing foreign investors to take over businesses that play a grand role in France's economy or national prestige.
The main trigger of this debate happened over the summer when rumors sparked over a possible takeover of the Danone yogurt and Evian Empire by the American conglomerate PepsiCo. This eventual takeover led many French politicians to voice a patriotic concern in order to avoid any hostile takeover of a company that many consider to be one of France's main icons.
Current EU protectionist law allows the state to block investments in any companies deemed sensitive to public order, public safety or national defense interests. Current Prime Minister Dominique de Villepin felt it was necessary to defend "industrial treasures" such as Danone and led the French population anew down the path of "economic patriotism." This coincides with Finance Minister Thierry Breton's plans to bring new laws to protect "very sensitive sectors" of the economy such as defense, biotechnology, telecommunications and space, which would all be subjected to government veto power.
Nevertheless, it didn't take long for the European community to react, and EU Internal Market and Services Commissioner Charlie McCreevy recently said at an economic forum in Italy that he would "vigorously pursue breaches of EU law resulting from attempts to thwart foreign takeovers."
The EU's Commissioner for Competition, Neelies Kroes, confirmed this warning by stating, "Member states are sometimes tempted to seek to protect their industrial or financial crown jewels from takeovers by companies from other countries and we have seen such signals from France just recently."
While the EU law on protectionism remains limited, all the noise around the new French "economic patriotism" has clearly created a dent in the foreign investors trust and is likely to have an impact on foreign investment in France, reinforcing an image that French companies are off-limits for foreign acquisitions. Laurence Parisot, the head of France's main employer's organization, was quoted in the daily Le Figaro, claiming "economic patriotism is fine so long as it doesn't become a Maginot Line."
"We can't congratulate ourselves when our companies make foreign conquests and then try to stop the reverse from happening," Parisot said.
What is interesting to note is that the French government carefully protected Danone from a Pepsi takeover but has had difficulty explaining why it enacted such drastic measures. Because Danone is a French icon, but is not viewed as a matter of national strategic interest, investors have now taken clues that this new economic protectionism is only the beginning of a conservative campaign for the presidential race in 2007.
European strategist Stewart Robinson of Morley Investment Management agrees.
"The issue really stems from the defeat of the European constitution in French and Dutch referendums earlier this year." Furthermore, the failed takeover is a manifestation of the decision "whether Europe will step back from the free market model to a more European social democratic one."
It is evident that the French government's new political strategy is a sign of pandering toward the French population. But as these regulations run contrary to the liberal improvements that Europe desperately needs, it could be detrimental to any positive economic future in Europe.
Therefore, it is clear that the EU commission has to react and specify the regulations concerning such protectionist activity. Otherwise, failing to condemn such activity in countries like France could lead to dangerous grounds, where political figures such as Dominique de Villepin adapt their political agenda in order to fulfill personal ambitions, which will only further degrade the European Union's credibility.
