Inside Business

December 6, 2012 2:05 pm

French steel promises are built on clay

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Clashes over Lorraine furnaces reveal hopes followed by betrayal

There are several unsentimental lessons to be drawn from the confrontation between ArcelorMittal and France’s Socialist government over a pair of idle steel furnaces in Lorraine. One is that France displays a resolutely contradictory attitude to business, combining world-class private companies with an anti-capitalist cultural rhetoric worthy of China’s Gang of Four circa 1976.

A second lesson is that acrimonious clashes, such as those that erupted over the Florange plant, contribute nothing to overcoming the structural difficulties of industries such as steel. Its overcapacity is global in scale. This is rooted in ruthlessly competitive business conditions and in the fluctuating performances of the US, European and Chinese economies.

Lastly, for ordinary employees facing the disappearance of their jobs, Florange contains a third lesson: beware the beguiling promises of politicians who, as often as not, take away with one hand what they offer with the other. Having dangled the prospect of the plant’s temporary nationalisation in front of the anxious Florange steelworkers, the French government let it fade away as tantalisingly as the grin of a Cheshire cat.

To be fair to President François Hollande, the behaviour of other European governments, centre-right as well as centre-left, is sometimes no less slippery. I vividly recall a snowy German night in November 1999 when Gerhard Schröder, the then Social Democratic chancellor, flew to the headquarters of Philipp Holzmann, the nation’s second-largest construction group, and solemnly declared that he had saved the company from bankruptcy. As crowds of hard-hatted workers chanted his name, Mr Schröder told them that he was “putting something under your Christmas tree” – a €2bn bailout co-ordinated with commercial banks. Less than three years later, Holzmann filed for bankruptcy and Mr Schröder kept carefully out of sight.

At Florange there is a similar pattern of inflated hopes followed by betrayal. True, the French government can claim that, by baring its teeth at Lakshmi Mittal, the billionaire steel magnate, it extracted a promise that more than 600 blast furnace workers would not be forcibly laid off. ArcelorMittal also agreed to invest €180m in other facilities at the site over the next five years. Claude Bartolone, who presides over France’s national assembly and is a politician who rarely minces his words, found an unnerving metaphor to summarise the government’s tactics. The threat of nationalisation, he told French television viewers last Sunday, had “served to twist Mittal’s arm”.

But did the arm-twisting really work? For the blast furnace workers, the future holds no certainty beyond the knowledge that neither the state nor the company is guaranteeing them long-term employment. ArcelorMittal made no concessions on what, from its point of view, was the central issue: the two Florange furnaces must remain closed because the global supply of steel exceeds demand. Nowhere are conditions grimmer than in the EU, where Eurofer, the steel industry association, predicts that real steel consumption will fall by about 4 per cent this year and 1 per cent in 2013.

ArcelorMittal employs about half its 260,000-strong workforce in Europe, but its main plants there racked up operating losses of $823m in the first nine months of 2012. Far from limiting its restructuring efforts to Florange, the company has had little choice but to shut down furnaces, at least temporarily, all over western Europe. Some, of course, may never reopen.

The economic rationale for these actions is well understood by the commanding officers of the French government: level-headed men such as Jean-Marc Ayrault, prime minister, and Pierre Moscovici, finance minister. The difficulties arise with bristly staff sergeants such as Arnaud Montebourg, industry minister. Mr Montebourg only half-perceives that his superiors, upon taking power in May, cast him in the role of an attack dog that barks leftwing platitudes at the business world precisely to deny him meaningful influence over French industrial policy.

To the Florange workers, Mr Montebourg spoke with passionate sincerity about the plant’s nationalisation. Nationalisation is to his bosses, however, as a nuclear weapon is to defence planners – a deterrent never to be used. Furthermore, they squashed his claim to have found an industrialist willing to inject €400m into Florange by briefing the media that this mysterious, unnamed investor was “neither credible nor solid”. In short, they hung Mr Montebourg out to dry. Whether this unsavoury episode will improve France’s image as a destination for foreign investment is another question.

tony.barber@ft.com

www.ft.com/insidebusiness

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