Protectionism or far-sightedness?

From Bloomberg:

French President Nicolas Sarkozy said the government and a state-owned lender will raise 6 billion euros ($7.6 billion) to create a sovereign fund aimed at protecting and developing the country's ``strategic companies.''

...

The creation of the fund is aimed at implementing Sarkozy's plan, announced last month, of protecting strategic French companies from ``foreign predators'' and helping them survive the global financial crisis. The turmoil has wiped out about 45 percent of the value of the benchmark CAC 40 index, choked bank lending and left businesses struggling to find financing.

``I won't let foreign funds get bargains thanks to the current levels of the stock market,'' Sarkozy said today near Tours, central France. ``I won't let French industry move out.''

You can think that this is another instance of silliness by the French--and a worrying sign of the kind of protectionism that we will be increasingly seeing.  Or you can believe that the stock markets have overshot and that the acquisition of controlling stakes in domestic companies by foreigners at fire-sale prices is an unnecessary transfer of wealth outwards.  If you think the latter, it may make sense for a government (that is less liquidity-constrained than domestic private investors) to engage in this kind of activity. 

Of course, the French government could simply try to prop up the French stock market by buying equities across the board.  But presumably that is a lot more expensive than selective purchases in firms most likely to fall into foreign hands.

Comments

[Barkley Rosser]

This is not at all surprising, given the reports coming out of the G-20 summit that the dinner on Friday night went on until 11 PM because of a fight over the declaration to hold off any protectionist moves for a year. Reportedly it was Sarkozy who was resisting this declaration.

[Per Kurowski]

And you mean that with $7.6bn you defend the crown jewels of France? Sorry Republíque, I personally think they are worth more… and I am not even French!

[Edd]

can someone explain me what does it means by "buying equities across the board"?

thanks

[Thomas]

Why not "become" a pradator and buy up some foreign "crown jewels?" I could suggest he start with GM and Ford.

[Youri_Kemp]

Hello to all,

It is patently obvious that these "stimulus packages" have gone the way of the subsidy.

It, apparently, is aimed at protecting against emerging economies, rather than US or other EU companies--or, perhaps, a little bit of both. I guess G-8 countries are saying to themselves; why not take advantage of present cirsumstances?

My question is, however, do all of these "subsidy" style stimulus packages, end any hopes of a deal in Doha in the near future?

While the issue, again, is subsidies in agriculture, and while taking into account that the stimulus packages aren't primarily aimed at the food industry, but, does this add another damper on an already hostile WTO Round of negotiations?

Best,

Youri
http://globalviewtoday.blogspot.com/

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One very interesting aspect of the current financial crises has to do with contagion mechanisims. For instance, Mexico had in the wakening of the crisis 85 billion in reserves, flexible exchange rate, highly healthy financial and credit system by any standard, minimal fiscal deficit, tight monetary policy, higher trade openess ratios in the world...and so on. However, the fact that the financial system is mainly owned by foreign institutions is having a hughe impact and financial turmoil. Mexican banking system has been ranking as a top OCDE profitability system.Big financial institutions have been reducing their assets worlwide and thus hurting the healthy and liquid financial markets. Is this a sort of "because your are healthy and strong financially as an emergent market you are target from financial institutions. This is a contagion mechanisim that needs to be further studied? Perhaps you have two types of crises: those caused by small countries and those caused by large countries. Would not it be interesting to conduct a sstudy regarding this distinction? Mexico has now lost 15 billion in reserves since october and has an accumulated 40% currency depreciation? And prices has not moved upwards....yet!

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``I won't let foreign funds get bargains thanks to the current levels of the stock market,'' Sarkozy said today near Tours, central France. ``I won't let French industry move out.''

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Very interesting! I'm sure France government is doing the right thing. Of course the worldwide crisis causes to governments to make little, cautious and considered steps. Anyway, we will see the results during the year.

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buying equities across the board is the best thing France can do now. It will be risky but worth to try.
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