National champions. Bravura nonsense

France and Germany are quite wrong to embrace the idea of industrial champions

YOU have to hand it to the French government: it certainly knows how to lay down a smokescreen. By persuading Germany to lend its support to a proposed initiative that will succour Europe's companies by helping them to become “champions”, France distracted attention from its long and dismal record of interventions in markets, mergers and acquisitions involving French companies. It also sent out a thoroughly unwelcome signal to the European Commission, which has struggled to make coherent and sensible competition and merger policies. It is obvious why France would do this. Far less clear is why Germany might join in.

France's record speaks for itself. Nicolas Sarkozy, the newish and reform-minded finance minister, has already shown he cannot resist his ministry's long tradition of meddling. This week he put the finishing touches to a big rescue plan for Alstom, a near-bankrupt engineering group. Earlier rescue efforts had been blocked by the European Commission on the grounds that they constituted unfair state aid. After some haggling, Mr Sarkozy emerged with a deal that, for the moment, excludes the sale of Alstom's gas-turbine business to Germany's Siemens. Siemens wants that business in order to compete more effectively against America's General Electric. Under the logic of champions, that surely constitutes a strong motive for Franco-German co-operation? Alas, no. Mr Sarkozy's behaviour suggests that if Europe must have its champions, then let them only be inside fortress France.

Another recent case shows how far France is willing to go to protect what it sees as its national, as opposed to European, interests. Aventis, a Franco-German drug company, is merging with Sanofi-Synthelabo, a bigger French rival. But the deal is going ahead only after the government made it clear that it would not accept offers from non-French bidders - Novartis, a Swiss firm, had indicated it might bid. (Contrast that with Britain's willingness this week to allow Celltech, its biggest pure biotech company, to be bought by a Belgian rival.)

Time for Germany to say no

So do the Germans really believe in the need for champions? It is true that Gerhard Schroder, Germany's chancellor, recently seemed to encourage Deutsche Bank to buy Postbank, the banking arm of Germany's postal operator. Equally, RWE and E.ON have been indulged as they have become two of Europe's biggest energy groups. And governments have tried to find local solutions for troubled businesses, such as Kirch and Philip Holzmann, to name but two. But these cases are counterbalanced by others, in particular the lack of interference when Britain's Vodafone bought Mannesmann. On balance, the Germans have intervened less than the French.

It does not follow that the latest rhetoric is therefore more amusing than dangerous. Europe does need strong companies to compete in increasingly global markets. But the way to nurture them is not to wrap them in cotton wool and to step in with help every time markets are tough. The French and German car industries offer a good example of how companies can compete successfully without government's looming presence. Equally, Italy's struggling Fiat shows how damaging long-term props offered in the name of local champions can be. Germany should refuse to enter any pact with France and expose what really underlies the champions debate: traditional and predictable French self-interest.

Editorial feature. France and Germany are quite wrong to embrace the idea of industrial champions.

• Primary Source