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By Graham Searjeant, Financial Editor, Times
(Reprinted with kind permission)

21 May 04. This weekend French and German economic ministers and key executives from Siemens and Alstom may meet to discuss the creation of European industrial champions. Then again, they may not. The French Government is trying to fog its planned third-round state rescue and subsidy scheme for Alstom in a haze of high European strategy. This might fool the Germans and even Mario Monti, the European Competition Commissioner, but Siemens probably realises by now that it is being sold down the river. See QUOTE OF THE WEEK ABOVE.

Instead of the cautious and successful Siemens picking up the wreckage of Alstom to create a globally strong electrical engineering group, it is being manoeuvred into losing control of its own business. Political interference would probably leave it with a series of joint ventures with its failed rival on an “equal” basis with the French Government pulling the strings.

Former GEC shareholders may recall that Alstom was formed as a joint Anglo-French venture but was soon reclassified in Paris as a French national champion. Its hubris has cost many British jobs and billions of pounds in exports. Even gullible Gerhard Schröder has noticed the fate of another recent Franco-German merger. The Aventis pharmaceutical group was formed amid much Euro-hype from leading German and French companies but only after Paris imposed as conditions that key functions must be in France.

Aventis too was soon mentally classified as French and when the future ownership of a smaller French drugs group fell into doubt, Paris engineered a merger to create a national champion, warning off companies from other European countries. Beware French companies proffering mergers might be an answer. But a passive response is not enough. British industry is already being caught up in the industrial strategies of other EU countries, whether we like it or not. The Commission is also laying the groundwork for gradual adoption of a common European industrial strategy.

An early glimpse of this initiative arrived this week in a report commissioned by Brussels from Dominique Strauss-Kahn, who used to be France’s Finance Minister. Given the source, it was no surprise that the report advocated creating commercial giants to rival American companies.

“If we do not do that,” M Strauss-Kahn said with a suitable sense of drama, “we are dead”. Ironically, this would be happening on a much bigger scale if market forces were allowed to prevail. For instance, Siemens would have absorbed the viable parts of Alstom and would probably be making a success of them by now. Unless pan-European giants are French-led, however, they cannot be formed, whether in mobile phones, transport, power, airlines, pharmaceuticals, media or much else.

In banking, this barrier has led to consolidation on national lines, which also hurts domestic competition. Only HSBC, an outsider in Europe, is genuinely global. In the wake of the Aventis affair, Germany’s Economics Minister first condemned France’s relapse into state intervention but then concluded that Germany must follow suit. Herr Schröder was soon telling bankers that Germany needed one or two German banking champions that could compete globally. To set the ball rolling, he offered to sell to Deutsche Bank the state-controlled Postbank, but Deutsche, in proper Anglo-Saxon fashion, spurned him.

British finance scoffed when Nicholas Sarkozy, France’s Finance Minister said: “It is not the right of the State to help its industry, it is a duty.” As more of the UK’s knowledge base and export potential slips away, this schoolboy sneering will cost us dear. Whitehall has just had to abandon most of its remaining golden

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