Mitterand's socialization of French industry begins
Any lingering doubts about President Francois Mitterand's determination to convert France to socialism have been eliminated by the detailed schedule for nationalizing French industry officially released at a Cabinet meeting here Sept. 9.
Five major industrial groups (Compagnie Generale d'Electricite, Pechiney-Ugine-Kuhlmann, Rhone-Poulenc, Saint-Gobain-Pont-a-Mousson, Thomson-Brandt) will be completely taken over by the government.
The government will also take over 51 percent of the stock in Dassault Aviation and Matra. In all some 11 companies will be bought by the state. In addition 36 private banks (representing 95 percent of the bank deposits in France) will come under government control as well as their shares in foreign affiliates.
Private stockholders in the companies to be taken over will be reimbursed with French government bonds that will come due in 15 years. As soon as the news was announced, the Paris STock Exchange suspended trading in the stocks of 38 companies that are likely to be affected by the takeover.
The groups being taken over represent France's major export moneymakers, and the price tag on taking them over will cost the government, and ultimately, the French taxpayer, at least several billion dollars.
Besides the nationalizations, the government also plans to impose a 0.5 to 1. 5 percent tax on the total resources of people who has assets valued at more than $500,000. Income taxes will also be indexed according to consumer price increases.
The nationalizations will still have to be voted into law by the National Assembly, but sinde the Socialists have a 39-seat majority, the takeover are certain to be approved.
Although the nationalizations have been expected for months, the news that President Mitterrand really intends to follow through on his program sent shock waves through France's financial community.
Ironically there has already been a rush to buy a French government bonds, which have been issued at a record high 16.75 percent interest rate in order to pay for programs the Socialist are already trying to put into effect. The bonds given to stockholders of companies being taken over will earn interest at the highest current rate.
Although 136 foreign banks and 65 French regional banks will not be affected by the nationalizations, the takeovers that are planned will give the government an effective stranglehold over credit which in turn will enable it to pressure private industry into following policy lines the Socialists want to enforce.
Nationalizations of two large private banks, the Banquede Paris et des Pays-Bas and the Compagnie Financiere de Suez have already raised some delicate questions. From 20 to 25 percent of the stock in both banks is held by foreign investors. Some have already indicated that they will not be pleased at being paid off in government bonds that will take 15 years to materialize. Also, both banks share ownership in numerous foreign-based affiliates, whose partners have already let it be known that they do not want a French Socialist government as a business colleague. As a result the banks may be edged out of some operations that are currently quite profitable.
Somewhat understandably, many businessmen here express the fear that nationalizing major industrial groups will introduce the notoriously conservative bureaucratic mentality of the French Civil Service into boardrooms at the very moment when management desperately needs to be flexible and dynamic in order to meet foreign competition.
There has already been a major scramble by many promising executives here to find jobs with foreign companies, and executive headhunters have been having a field day. Among those most opposed to the nationalizations, there has been talk of emigrating to the United States.
The tax on wealth is also likely to have a major impact on certain aspects of French life. A number of French bourgeois and noble families have managed to hold on to their ancestral chateau, but little else. Since the new tax will effect the estimated value of property than its market value, many families may be forced to sell their property at a time when no one wants to buy because of the tax.