European Comment: Paris in South Pacific pickle

The turbulent Mediterranean island of Corsica has been giving Paris sleepless nights. Now – on the other side of the globe – its Pacific territory of New Caledonia risks increasing its insomnia.

For the proposed Inco-Falconbridge merger, creating the world’s largest nickel company, is threatening to revive tensions in the distant archipelago boasting a quarter of the world’s nickel resources.

As the backbone of the economy, nickel has been mined in New Caledonia for more than a century – by the Rothschilds, then by the state and now by the privatised Eramet group. It has inevitably attracted other mining groups. As part of efforts to pacify local backers of independence, Paris made Eramet shed some of its precious resources to Falconbridge.

But the Canadians have failed so far to make good on their end of the bargain: construction of a $2.5bn refinery in return for the concession on a rich deposit. Unless they finally commit themselves irrevocably by year-end, the deposit will revert to Eramet.

Many suspect the Canadians of playing a deft game of poker. They want the deposit but have doubts over the refinery’s viability. And if Falconbridge were finally to commit itself, Inco – once the Falconbridge merger was completed next year and the deposit was in the bag – could be tempted to scotch the project.

Even if it did press ahead, the Canadian combination would replace Eramet as the territory’s dominant producer. This prospect is beginning to worry Paris and locals alike.

Take-over targets

Société Générale has just put out its annual survey of European takeovers and its list of 50 potential targets next year makes more interesting reading than usual.

Not only is merger and acquisition activity expected to grow even faster, the French bank says shareholders are encouraging companies to adopt more aggressive external growth strategies rather than indulge in share buy-backs and big dividend handouts.

Take-overs will accelerate because acquisitions are still pretty affordable with an average bid premium of 14 per cent. This compares with 28 per cent five years ago and 35 per cent during the 1997 bourse bubble.

The list does not include companies already in play such as Danone, the food group. They range from defence companies Thales and Finmeccanica to utilities such as Iberdrola and Scottish Power, pharma group AstraZeneca and media and telecom operators such as Vivendi and Telekom Austria.

The bank singled out six companies it believes particularly vulnerable – the French Atos Origin IT services group, Commerzbank and Banca Popolare di Milano, and three UK companies: Prudential, IMI and Emap.

Some governments are now rushing to erect fresh barriers to protect local champions from the takeover tide but chances are they will only delay the inevitable. There is one curious omission. Ever since fending off BNP Paribas, Société Générale has always been in play. But it could scarcely talk about itself.

Working mothers

These days, everybody takes for granted the idea that Europe cannot revive economic activity without institutional change. In the same way they assume the gap in performance between their countries – as well as the US and Asia – largely rests on productivity, technology and market reform.

What they underestimate, or completely overlook, is putting more women in work and encouraging greater gender equality could provide a long term solution.

This is the conclusion of an Organisation of Economic Co-operation and Development study analysing the relationship between birth rates and attitudes towards women at work in different countries.

The findings show countries with more traditional family structures (Germany, Italy, Spain) face chronically low birthrates, whereas – surprisingly – birthrates tend to be higher in Nordic countries (such as Sweden) where gender equality is more developed.

Given that western Europe’s population will decline sharply in coming decades – and that the working-age population will decline even more rapidly resulting in slower growth and an increasing and unsustainable dependency ratio – reviving the birth rate is pretty crucial in avoiding economic stagnation.

If you accept the thesis that women at home are far more likely to postpone or even abstain from childbearing, then governments should take note. A shift in attitudes is needed.Calling for labour market reform and keeping people longer at work is simply not enough.

Combining parenthood with rewarding employment may be the key. But by going to the other extreme, Tony Blair, the UK prime minister, risks taking the wrong direction with his idea of granting husbands six-months’ paternity leave.

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