If the issues were not so important and the potential consequences so alarming, the political shows France and Italy have been staging in recent days could qualify for Hollywood awards. Yet in both cases – the French government’s climbdown over labour reform and Romano Prodi’s inconclusive electoral victory – the clear losers are the two countries and, more broadly, Europe’s long overdue attempts to adapt to change and global competition.

For the risk of political paralysis has now become very real in both countries, threatening to postpone indefinitely urgent and unpopular reform to revive growth and employment. In France, a weakened and divided government is now entirely focused on next year’s general and presidential elections. In Italy, the chances are that the country will again be called to vote in six or 12 months’ time.

It is bad enough that France and Italy cannot get their houses in order. Even worse, they will inevitably infect others in Europe at a time when the European Union continues to lose ground to its Asian and American competitors.

The global economy is currently growing at 4.5 per cent. In some parts, such as China, economic growth is as much as 10 per cent.

The EU, in contrast, is trailing at about 1.5 per cent. Not that the situation is uniform, since Ireland is growing by 5 per cent, Sweden by 3.2 per cent, and Spain by 3.4 per cent. The trouble is that the continent’s three biggest economies risk dragging others down.

Granted, Germany has taken matters in hand since last year’s close election result. Yet it has been growing by only 1.1 per cent a year since 1990 and its unemployment rate is stuck at 11.2 per cent.

France is growing at only 1.4 per cent and Italy comes bottom of the class with zero growth. Yet France and Italy account for about 40 per cent of the eurozone economy – add Germany and the figure rises to 70 per cent.

Political turmoil in France and Italy can only induce more protectionist and inward-looking reactions, making it all the more difficult for Europe to adopt a common approach to reform.

Businesses in both countries will continue to muddle through in spite of politicians. The larger international groups have already weaned themselves from their domestic markets. But even these big companies need a sense of direction that is sadly absent these days in Paris and Rome.

Dutch on the edge

As the heated game of corporate brinkmanship at VNU approaches its climax, mainstream shareholders in the Dutch business information group can be excused for being confused.

The company’s embattled management continues to argue there is no alternative to its proposal to sell out to a group of private equity firms. It has made no case for the company remaining independent or squeezing a higher price for the sale. It has even agreed to pay the private equity consortium a €30m fee if the offer is rejected.

Institutional and activist shareholders believe the takeover price recommended by the management undervalues the company. Knight Vinke, leading the charge, has also proposed an alternative plan – the sale of only 30 per cent of VNU to the buy-out consortium and restructuring the company under new management and name.

The current management is unlikely to secure the 95 per cent support necessary for its agreed takeover by the private equity consortium despite intense last-minute lobbying. Equally, Knight Vinke’s alternative plan is not seducing everybody.

The result could well see VNU remaining independent. But it is likely to be a long hard slog before the new management delivers the extra value activist shareholders believe can be extracted.

Football fans

High finance is coming to the rescue of the iconic but underperforming Paris soccer team – Paris Saint-Germain. The US Colony Capital fund together with Morgan Stanley and the French private equity firm Butler Capital Partners have agreed to acquire the club in a deal orchestrated by Lazard from Canal Plus.

The French pay television network and its parent, Vivendi, are clearly relieved to be shot of a club that had become a major financial headache and source of much public controversy.

What is in it for the financial boys? Colony considers the club offers promising commercial property development opportunities. But the real pay-off could come if and when France finally passes legislation to allow football clubs to be listed.

Copyright The Financial Times Limited 2018. All rights reserved.

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