TCS Daily

Liberti, igaliti, bankruptcy!

By Jean-Christophe Mounicq - October 24, 2003 12:00 AM

Alstom, builder of high speed trains (TGV), nuclear plants and cruise liners, was the showcase of French technology. It is now the showcase of French bankruptcy.


Like France, Alstom is badly managed, unable to balance its accounts, and encumbered with debt. Alstom illustrates the failure of French "social-capitalism," a state driven capitalism that is actually closer to socialism. It also illustrates the failure of French "elites," with the emblematic "enarques." These former students of France's top administrative school, ENA, include the ex-chairman of Alstom, Pierre Bilger.


Today France is directed by a group of irresponsible public servants who have seized both political and economic power -- deadlocked the system -- and are driving the country into a wall. Some members of this nomenklatura are heading the state (Chirac, de Villepin, Juppé, Jospin, Hollande), others are in charge of its businesses (Messier, Jaffré, Bilger, Seillière).


Some are making a comfortable living if not a fortune by ruining their stockholders and employees. Others acquire positions by ruining France. The French nomenklatura dislikes capitalism but loves money. Jean-Marie Messier was forced out of Vivendi Universal with an "indemnity" of €20 million. Pierre Bilger took only €5.1 million -- a nice fee for bringing the value of Alstom shares from €30 to €3 and the company to insolvency in two years,.


French citizens, who see the rise in unemployment and the fall in their standard of living, are paying an increasing price for having voted for their nomenklatura during the last three decades. These elites behave as if France were theirs. They control the Parliament and enact laws but do not respect them. They distribute commissions to mistresses of ministers with Elf Aquitaine, they lend billions without calculating risks to Credit Lyonnais, they resort to illegal means to finance political parties, such as the Socialists with Henri Emmanuelli or the Gaullists with Alain Juppé. Despite multiple instances of illegal behaviour French elites are rarely sanctioned.


The socialo-gaullist elites, who control French media groups, buy their support by distributing money to Communist (CGT) and Trotskyite (FO) unions, to 7 million public servants (often useless), to 12 million retirees (often pre-retired), plus millions of immigrants living on welfare. But French politicians are so "generous" that even with the highest taxes of any OECD country, they chronically accumulate huge debts in all public entities: state, regions, cities, social programs, public companies. Having been unable to balance any French budget for more than 30 years, they are driving France to a financial crisis that will shake all of Europe.


"Enarques" also control many major French companies and banks, including private ones. Nostalgic for the glorious past of France, Napoleon is often their model. The current foreign minister, Dominique de Villepin, wrote a book on Napoleon I and praises the former French emperor as vehemently as he denounces American "imperialism." Messier, who brought his once wealthy company close to bankruptcy, was often described as thinking he was Napoleon.


To understand the "talent" of French elites one must study the way Alstom has been managed. When Alstom was introduced in the stock market, it was undercapitalized. Its main stockholders, Alcatel and GEC, issued an exceptional dividend of €1.2 billion. Alcatel is headed by Serge Tchuruk, another Enarque who conceived the idea of "industry without factories" and did no favors for his own company.


Bilger bought the energy division of ABB to become "number 1." But the "new technology" of "powerful gas-turbines" from ABB was failing. Despite knowing this, Bilger paid €4 billion. Alstom took other major risks, like building yachts for Renaissance Cruise lines without demanding any collateral. The subsequent Renaissance Cruise failure cost the company €700 million.


The bad corporate management of Alstom should have led to bankruptcy. But Alstom owes banks €3.4 billion. Baudoin Prot, énarque, for BNP Paribas, Philippe Citerne for Société Générale and Alain Papiasse for Crédit Agricole went to see Finance Minister Francis Mer. With Patrick Kron, the current Alstom chairman, they argued that the company's failure would not only paralyze the European rail system but be disastrous for the French economy. Two absurd statements: if Alstom collapsed, its transport division would be acquired by other firms, and French banks would be able to support such a loss. But Mer decided that the state should come to the rescue and fork over a couple of billion.


It is French taxpayers who will pay. Most French think they are saving their technological potential. But Alstom is not saved over the medium term. They are saving members of their failing elites. It will increase the French public deficit which is already the largest of the European Union. It has not been widely reported to the French public that the European Commission and the OECD evaluate the French public debt as equal to 250 percent of GNP, if one includes future pensions that will have to be paid to their civil servants. The debt of France is 20 times the former debt of Argentina... before it went to bankruptcy.


As no French politician is ready to take any measure to reduce public and social spending, it is difficult to see how France can avoid a major financial crisis in the coming years.

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