Investors beware: France will get more erratic

June 23, 2014

By Pierre Briançon

The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

The French government didn’t have to buy a 20 percent stake in Alstom. It could have smugly observed that its intervention in the acquisition of the French engineer’s energy assets by General Electric had yielded some success. Pressure from Paris forced GE to rework its offer, giving France a decisive say in the future of Alstom’s nuclear business. With that concession secured, there was no good reason to buy out Alstom’s main shareholder, construction-to-telecom conglomerate Bouygues.

The bad reason for doing so was that President François Hollande had to make a concession to his Economy Minister Arnaud Montebourg, who is building his career on an unapologetic defence of old-style interventionism. True, the French government hasn’t yet spent any money – it has obtained an option to buy two-thirds of Bouygues’ stake in the next 20 months at a relatively high price, or at the market price afterwards. The government may never actually buy it, and the partial nationalisation that Montebourg is bragging about might never happen.

Either way, the whole deal sends a worrying signal about Hollande’s inability to steer a course and keep his unruly ministers in check. Stunned by the terrible results of his socialist party in the European Parliament elections last month, he has been mostly absent from both the domestic and the international stage. His former partner and current Energy Minister Segolene Royal only last week sent EDF shares tanking by abruptly cancelling an increase in electricity tariffs due in July. The French state’s 85 percent stake in the utility has lost almost 5 billion euros in value since she spoke. The planned raise had been agreed by Hollande’s previous prime minister after painstaking negotiations with EDF. So France’s president simply looks like he is contradicting himself, and letting his ministers run the show.

Investors had better brace for more signs of government division and incoherence. Hollande will remain politically weak. The French economy will not improve much this year, in spite of genuine, but piecemeal and contested attempts at reform. No wonder the kids see the chance to take control of the classroom.

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