European Comment: Discreet economic patriotism

When it comes to defending national champions, no one does it more loudly than the French. Take EADS. Rather than let the industrial partners resolve the problem, Paris has called for a “total rethink” of the group’s structure.

The same applies toother industrial issues. It was the increasingly embattled prime minister Dominique de Villepin who promoted, with somewhat reckless haste, the proposed merger between Gaz de France and Suez to block an Italian bid for Suez.

Paris also waved the red card at PepsiCo when the US multinational was rumoured to be sniffing around yoghurt maker Danone. The government has been backing Arcelor’s efforts to shake off Mittal Steel’s approaches. It engineered the French pharmaceutical merger between Aventis and Sanofi to avoid a possible Swiss takeover. And so on.

Now step across the border to Germany, France’s traditional industrial ally, and the silence is almost deafening. Berlin has hardly squeaked in the face of the deepening crisis at EADS in which one of its biggest champions, DaimlerChrysler, is the single largest shareholder. Even more interesting, Berlin has said practically nothing on the current battle for Euronext.

Nobody should be fooled by the statements from the premier of the state of Hesse opposing with French-style clamour Deutsche Börse’s sweetened offer for Euronext. He was playing to the local gallery worried that the new Börse concessions would undermine Frankfurt’s role as a financial centre and lead to job losses.

The premier has local elections in sight and any threats to revoke the Börse’s licence appear in reality pretty empty. If such a thing should happen, it would be the federal government in Berlin that would end up getting it in the neck from Brussels. The EU could hardly entertain such blatant protectionism.

Meanwhile, Angela Merkel is keeping mum. That does not suggest the German chancellor is indifferent. Far from it. Like other European leaders, she considers Europe has more to gain from a Deutsche Börse-Euronext merger and more to lose should Euronext fall into American hands. Nor, for that matter, is she indifferent to the outcome of the EADS crisis.

The big difference in the French and German approaches is that the German government publicly proclaims its belief in maintaining a healthy distance between business and state. That does not mean it is not working behind the scenes. As a result, Germany can boast the semblance of a free market. But just try pulling off a hostile takeover in Germany, as Merck recently attempted, and the chances of success are likely to be slim, if not impossible.

Modern conglomerates

Some of Europe’s oldest conglomerates are undergoing a welcome facelift. What is even more encouraging is that they are injecting a sense of urgency in coming to grips with their unwieldy organisational structures.

Siemens investors are celebrating the German conglomerate’s deal to merge its telecoms network business – by far its largest division – with Nokia. Yesterday it was the turn of Philips shareholders to cheer the Dutch group’s decision to float or sell its semiconductors business, keeping a minority stake.

The logic is similar to the Siemens move. Philips chief executive Gerard Kleisterlee, like his Siemens counterpart, Klaus Kleinfeld, has set his heart on unshackling his group to give it a stronger, industrially-focused profile.

The semiconductors spin-off is expected to make the conglomerate’s earnings less volatile and accelerate its transformation into a modern healthcare, lifestyle and technology company.

Once floated or sold, Philips clearly hopes the semiconductor business will merge with another group to give it the scale to fund the big investments needed to compete in this business – a sector, like its telecom customers, in the throes of consolidation.

Wealth management

Where do the rich – whose numbers, according to a Merrill Lynch-CapGemini report, swelled by a further 500,000 to 8.7m people last year – invest their assets?

The biggest share last year went into equities (30 per cent) followed by bonds and alternative investments such as hedge funds. Property accounted for only 16 per cent. The conclusion is they were all enjoying the bull run in world equity markets but starting to fret over peaking property prices and hedge funds.

The recent correction in equities is likely to change the asset allocation picture this year. One suspects cash positions will be higher than last year’s 13 per cent as investors see how the current rate-tightening cycle unravels.

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