FRANCE: PARTNERS IN THE TOP TIER - FRANCE AND GERMANY. - Cross-border investment between France and Germany is growing fast.

by Peter Wilsher.
Last Updated: 31 Aug 2010

Cross-border investment between France and Germany is growing fast.

The European Community has had a sorry start to what should have been the soar-ahead 1990s - what with being mired in Maastricht, at odds over the perennially stalled Uruguay Round trade talks and unable to do much about either mass unemployment or the gruesome conflicts on its Balkan doorstep. But the general air of gloom and debility should not mislead us into thinking that everything is falling apart. Things are happening that may soon turn out to be very important - especially if we are, as some predict, heading for a two-tier, two-speed Europe with Britain on the squabbling periphery. The most significant change is the growing cohesion between the two giants, France and Germany. If the 12, at the end of the day, cannot finally get their act together - let alone any future 16 or 24, as an attempt is made to include the old EFTA neutrals or the emerging democracies beyond the Elbe - then there are plenty of signs to suggest that the original core of six will still constitute a formidable competitive force.

This was not always the case. In the Community's early decades France was rightly seen as a political heavyweight, but in economic terms a relative pygmy. When it came to industrial and financial clout, the balance always strongly favoured the beneficiaries of the post-war Wirtschaftswunder. But since President Mitterrand's abrupt 1983 U-turn, when he decided it was no longer possible for a single country, on its own, to spend and devalue itself out of a recession, that has all dramatically changed. After 10 years of harsh monetary discipline, the two can, and do, now see themselves as genuine and pretty equal economic partners.

This revised perception is beginning to pervade every level of business life in both France and Germany. The two countries' finance ministers and central bankers now hold regular six-monthly meetings and have so far successfully co-operated to preserve the franc from the storms shaking most other currencies in the ERM. Even French companies with old established managements, such as the glass-makers St Gobain, are no longer too proud or authoritarian to introduce extensive German-style worker-participation arrangements.

It is reckoned that there are now 2,000 subsidiaries of German companies operating in France and around 1,000 French enterprises trading on the far side of the Rhine. Cross-border investment, which has grown more than eightfold in both directions since the early 1980s, now stands at over £1 billion a year each. In East Germany, France has put in more money, and created or preserved more jobs than any other country so far, including the vast Leuna project, with its brand-new oil refinery and related filling-station chain, where Elf-Aquitaine (with its minority stakeholder Thyssen) has agreed to put up more than £2.3 billion between now and 1996. Such high-profile deals have done France's commercial image a power of good throughout the expanded Federal Republic. Renault is now not only the biggest non-German car supplier to the Eastern Lander but it has also out-stripped both Fiat and Nissan in the West.

There is still a certain amount of residual suspicion, of course. Memories of 1,000 years of military rivalry do not evaporate overnight, and it took France's big insurance group, Assurance Generales de France, a lot of time and legal effort to win the right to vote the 25% shareholding it had acquired in AMB, Germany's second-largest equivalent. However, that battle has now been won, and the two groups are embarked on an ambitious programme of national and international co-operation. Similarly, there has been a lot of Gallic doubt about Daimler-Benz's 34% stake in the key software group, Cap Gemini Sogeti, and Hoechst's controlling interest in Roussel-UCLAF pharmaceuticals (especially when this looked like inhibiting world sales of the company's instant-abortion pill). But by and large the mutual interpenetration of the two nation's economic activities is proceeding smoothly.

This process is also extending to the boardrooms and executive suites. The headlines are caught when it is the already eminent who are involved - Count Otto Lambsdorff, head of the German liberal party, the FDP, and one-time succourer of the European steel industry taking over as chairman of the supervisory board for France's leading telecommunications group Alcatel, or Roger Fauroux, a former French industry minister, joining the top-tier at Siemens. But there are plenty of other, less starry examples - not least, Volkswagen's new top man, Frenchman Daniel Goeudevert.

Needless to say, between such prickly participants, not all is yet sweetness and light. Divisive topics include GATT (which the Germans like, but the French still hope to scupper), relations with the Japanese (welcome them in, says Bonn; send them all packing, says Paris) and Airbus (where the Germans feel the French take all the credit, while only doing a minority share of the work). But such flurries should not obscure the main point: these two are a great deal more together today than they have been since the days of Charlemagne. Such a tightening of allegiances can hardly fail to have major implications for the balance of Community power. Britons, of all people, should be taking appropriate note.

Peter Wilsher is a freelance consultant and writer.

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