Privatisation props up feeble French

FRANCE'S socialist government is gearing up for a fresh e10bn (£6.2bn) privatisation programme next year, with assets on the block including shares in Credit Lyonnais bank and carmaker Renault.

The disposals will bring privatisation receipts over the past five years to some e40bn - almost twice those achieved in the previous half decade by right-wing governments under Edouard Balladur and Alain Juppe.

But the sad reality is that, barring modest sums earmarked for old-age pensions, most of the cash has gone to prop up other lame ducks among the 1,569 companies still majority-controlled by the State at the end of last year. For these businesses also provided 5.2% of the nation's employment. And in a country with a jobless rate of 8.9%, the legacy of a half-century of government venture capitalism is costing dear.

Among these firms, the largest 19 generated revenue of e154bn in 2000, but net profits of just e4.5bn, a paltry 2.9% operating margin. Now, because this extraordinary asset portfolio has been ring-fenced within the finance ministry, an upsurge in lame ducks is obliging Finance Minister Laurent Fabius to sell more assets to bail out the duds.

The latest is Bull, France's answer to IBM, that would now be in the knackers' yard but for last month's e100m State loan pledge. But privatisation receipts are still paying off the creditors of Credit Lyonnais, underwriting losses of privatised insurer GAN, and so on.

Reseau Ferre de France, the French Railtrack, needs e1.86bn more to tidy up its over-geared balance sheet and near-defunct coal miner Charbonnages de France needs e1.11bn.

According to a Finance Ministry report, the recapitalisation demands of State-owned businesses this year and next are likely to total e7.5bn. Raising the dosh in today's markets will not be so easy, although there are still some more-or-less appetising morsels in the portfolio.

For in addition to its majority-controlled firms, the State has sizeable stakes in a host of quoted companies. The sale of its 9.8% of Credit Lyonnais to Credit Agricole and Allianz is already being negotiated. And it looks like part or all of its holdings in Renault, technology groups Dassault Systemes and Thomson Multimedia will come under the hammer.

Ironically, because of the rule that the State's industrial portfolio be self-financing, the greater the damage to the country's enfeebled State businesses imposed by the current economic slowdown, the more assets will have to be sold.

Getting these competition-distorting bailouts past Brussels is getting ever more difficult. But, little by little, the historic liabilities of firms such as Electricite de France (owner of London Electricity, and - soon - Eastern Electric) should be enough to continue the gradual erosion of the French industrial State, as socialism gives way to capitalism.