Dirigisme de rigueur

Illustration by Claudio Munoz

WHEN Vivendi, a French telecoms and media group, announced a deal to buy GVT, a Brazilian telecoms firm, for €2 billion ($2.9 billion) in September, the last thing it expected was a scolding from the Elysée Palace, the official residence of France's president, Nicolas Sarkozy. His staff complained that they should have been briefed as the deal was being negotiated, which might then have allowed Mr Sarkozy to bask in the glory during his recent visit to Brazil.

Phone calls from the Elysée are becoming a frequent feature of French business. In February Eutelsat, a satellite firm in which the state is a minority shareholder, decided to use a Chinese “Long March” rocket to launch a satellite. It wanted to diversify its suppliers and keep costs down. Soon afterwards the company's board members were summoned to the Elysée. Eutelsat should have used a rocket built by Arianespace, a French firm, they were told by one of Mr Sarkozy's advisers.

Until the financial crisis struck successive French governments had been reducing their involvement in business. The state sold majority stakes in big firms such as France Telecom in the 1990s and early 2000s, and let those firms still largely in government hands, such as Electricité de France (EDF), take a more market-oriented approach. But the crisis has prompted a creeping return to an earlier tradition. “The tide was going in one direction for years—even the socialists privatised, we had less political interference and more financial savvy,” says an investment banker in Paris, “but now we're stepping backwards.”

To be sure, intervention is newly in style in several countries, with governments around the world taking stakes in banks and America's taking charge of two carmakers. But as might be expected, France is going further. Not content with the state's existing stakes in many big French firms, Mr Sarkozy has set up a new fund, the Fonds Stratégique d'Investissement (FSI), to make further investments.

Half owned by the Caisse des Dépôts, a public financial institution, and half directly by the government, the FSI aims to invest €2 billion a year in French companies. Its boss, Gilles Michel, says it will act as a long-term minority shareholder for promising French firms, encouraging private investors to invest alongside it. But business people see a return to the “noyau dur” system of the late 1980s, when the state created a web of cross-shareholdings to protect firms against foreign takeovers.

Mr Sarkozy encouraged one of the FSI's first investments, in Valeo, a troubled car-parts firm, as a defence against an American activist fund, Pardus Capital. “If there's a hostile offer for, say, Danone, the FSI will be ready,” says an adviser. Mr Michel, however, argues that cases where the FSI has resisted pressure to invest “demonstrate our independence and mandate to invest only in firms with potential.”

“The crisis has deepened Mr Sarkozy's determination to promote French national champions, whether state-owned or private,” says Alain Minc, an influential consultant in Paris, “and he intends to use all the tools at his disposal to achieve his aim.” The government recently decided to sell the transmission and distribution arm of Areva, a state-owned nuclear firm, to Alstom and Schneider Electric, two French companies, despite a higher bid from Japan's Toshiba Corporation. Mr Sarkozy would even like to resurrect Péchiney, a French aluminium firm taken over by a succession of foreign rivals, which cut managerial jobs in France and changed its name. The FSI is now looking into investing in its remains and reviving the brand.

In October the FSI invested €7.5m in DailyMotion, a successful video-sharing website which competes with YouTube outside America, and took a seat on its board. “It's the only decently successful French start-up in the internet industry,” explains an adviser to Mr Sarkozy. The FSI's involvement has angered private-equity funds, which wanted to participate in DailyMotion's capital raising, but found themselves outbid by the more generous terms offered by the government, according to one of them.

Mr Sarkozy has also made his presence felt by appointing associates to prominent business jobs. Critics bayed last year when he chose an economic adviser, François Pérol, as head of BPCE, a mutual bank whose formation through a merger he had just overseen. Most recently, the rise of Stéphane Richard, another friend, at France Telecom, in which the government retains a 27% stake, has raised eyebrows. He joined the firm in May with no experience in telecoms save a prior stint on the board, but is due to become boss within two years.

Mr Sarkozy's most controversial appointment has been that of Henri Proglio as the head of EDF, a state-owned utility. Mr Proglio has insisted on keeping a role at Veolia Environnement, an environmental-services company where he had spent most of his career. Mr Proglio's position at the top of two firms in related businesses is regarded in French boardrooms as a shocking breach of good corporate governance. The head of the stockmarket regulator recently called the set-up “baroque”. Mr Proglio is also thought to favour a share swap involving EDF which would raise the state's interest in Veolia from 13% to 23%.

There are limits to Mr Sarkozy's influence. An outcry forced his 23-year-old son to abandon a bid for the top job overseeing the agency that runs La Défense, Paris's business district. On December 18th France's telecoms regulator awarded a new mobile licence to Iliad, an upstart telecoms firm, even though Mr Sarkozy had publicly voiced misgivings. Nor has the government prevailed in the case of Accor, a hotels and services group where two big active shareholders are pressing for a break-up. The FSI opposes the split, but with just 7.5% of the firm's shares it has not been able to prevent a decision by the board in December to press ahead.

Some business people reckon Mr Sarkozy's interventions may yield results. When, as finance minister, he intervened in the case of Alstom, injecting public money in 2004, he saved the company and eventually made a big profit for the state. But executives also worry that French industry may face a backlash abroad because of his desire to promote national champions. Above all, French bosses dread a call from the Elysée.