France moving away from state interventionism

PARIS, Feb 26 (AFP) – France, cornered by EU budget rules, sent particularly strong signals on Thursday that its deficit problems and cross-border corporate activity are driving change in French budget and industrial policy.

French Prime Minister Jean-Pierre Raffarin said his government was determined to push ahead with privatisation to raise money.

And he insisted that companies must look to European alliances rather than the state to ward off foreign takeover bids.

Speaking in particularly blunt terms, he said that France had to control spending, raise money from selling state assets and reduce sharply its role in industry.

Raffarin said that the state was likely to withdraw completely from some companies, mentioning the particularly sensitive case of France Telecom.

France, already seriously in breach of EU budget deficit rules, has promised to reduce its deficit to the permitted ceiling of 3.0 percent of output by the end of 2005.

Speaking to the association of economic journalists here, Raffarin said that although he was confident the economy would grow by 1.7 percent as targeted this year, and maybe even by slightly more, the trend would not be sufficient to bring the deficit into line.

He said: “We are maintaining the target of a (public budget) deficit of less than 3.0 percent of gross domestic product in 2005. That requires budget discipline through control of spending.”

To achieve this, France would also use money from privatisations and part privatisations and the sale of some state property.

Although under EU rules proceeds from privatisations cannot be used directly against the deficit, they can indirectly help the shortfall by easing other expenditure commitments.

Raffarin also said there were reasons for the state to withdraw completely from several companies such as Alstom, Renault, France Telecom and Thales.

Referring to recent financial problems for the state as a shareholder in France Telecom and the electricity distributor EDF, he commented: “It seems that we (the state) are not well suited to international operations.”

The role of the state was not to be a player in the capitalist sphere.Since Raffarin’s government came to office two years ago, it has orchestrated a massive capital increase for struggling Alstom and a EUR 9 billion (USD 11.2 billion) credit line for France Telecom.

Raffarin was asked how the French state would react if foreign takeover bids were made for French companies, and notably by British Vodafone for Vivendi or British-Dutch Unilver for Danone.

The only way for European groups to strengthen themselves against the threat of takeover by foreign companies was to adopt a European vision, he replied.

The state had to watch over employment, but there were some areas into which it could not go without increasing public spending enormously.

It would be unreasonable for the state to get involved, he said.The answer lay in “a European political and economic vision,” an analysis shared, he said, by Britain and Germany.

A European approach was needed to face up to “international threats hanging over big European groups”.

Referring to the recent acquisition of French aluminium and packaging group Pechiney by the Canadian group Alcan, he regretted that “Europe lacked vision at the time”.

Subject: France news