French business adopting English as official language (outside France)

[Harold F. Schiffman]

>>From thebusinessonline.com
Wednesday, March 08, 2006

Europe's march back to mercantilism 06/03/2006

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 Italys 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 countrys 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 Europes single market: Luxembourg is bringing in a new wave of
takeover legislation in an attempt to thwart Mittal Steels 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 UniCredits 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 EUs 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 directives 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 Europes 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 countrys 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 Frances private companies
have changed over the past decade and how much these changes have been
resented by the countrys governing elite and the population at large.

As we explain elsewhere in this weeks 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),
Frances 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 Frances 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
Americas 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. Frances 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.

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