Friday, November 06, 2009

(BN) Sarkozy's `Grand Loan' Pits EADS Against Peugeot, Safran in Fight for Cash

Bloomberg News, sent from my iPhone.

Sarkozy 'Grand Loan' of Up to EU50 Billion to Boost Industry

Nov. 5 (Bloomberg) -- President Nicolas Sarkozy's plan to spend between 25 billion euros ($37.3 billion) and 50 billion euros to reverse France's declining industrial competitiveness has triggered a race for a piece of the pie.

European Aeronautic, Defence & Space Co. wants a share of what Sarkozy calls his "grand loan" to develop helicopters. Safran SA is promoting more efficient jet-engines. PSA Peugeot Citroen is pushing a plug-in car. STMicroelectronics NV proposed fourth-generation cellular networks and telemedicine services.

"Everybody wants a share, so there needs to be a simple selection criteria to avoid a scrum which would end with political decisions going in all directions," said Michel Didier, a member of Prime Minister Francois Fillon's Council of Economic Advisers and chairman of the Paris-based COE-Rexecode research institute. "Without a business plan for each project, we'll have a bit of everything, and deficits all around."

Sarkozy's aim echoes former President Charles de Gaulle's development of nuclear energy, computer technology and the aerospace industry by financing research and development. From 2000 to 2007, France's share of global exports fell by an annual average of 3.5 percent, ranking it 25th among the 30 members of the Organization for Economic Cooperation and Development.

The government's 2010 budget estimates public spending will account for about 56 percent of gross domestic product.

The "grand loan" will range between 25 billion euros and 50 billion euros, a Sarkozy aide, who declined to be named, told Bloomberg today, confirming reports in several newspapers including Le Monde and Le Figaro. It's not yet clear how much of the money will go to the private sector and how much will have to be paid back.

That will add to a 1.43 trillion-euro debt load, which the government expects to reach 90 percent of GDP in 2012. France is planning to sell a record 175 billion euros of notes and bonds, net of buybacks, next year.

Credibility at Risk

France may "lose all its credibility on international markets" unless the constitution is amended to require deficit reduction in the next decade, said Jacques Delpla, a member of the committee studying how the fund should be raised and spent. Its recommendations to Sarkozy are due this month.

France's benchmark 10-year bond yielded 3.63 percent at 3:30 p.m. in Paris today, 2 basis points higher than the Dutch and Finnish government bonds, while it was 3 basis points lower three months ago. That suggests investors have favored other euro-denominated debt with the same AAA credit rating assigned by Standard & Poor's.

Biofuels

Former Socialist Prime Minister Michel Rocard, who co-heads the committee working on the proposal, said in an Oct. 29 interview that possible uses for the money include developing new aircraft and electric cars, and research on nanotechnologies and biofuels. France can't afford much more than 35 billion euros without putting its creditworthiness at risk, he said.

In a Nov. 2 editorial in Le Monde newspaper, 63 lawmakers allied with Sarkozy called for a loan of up to 100 billion euros over five to 10 years.

French business lobbies, the CGPME and the Groupe des Federations Industrielles, have appealed for government help exceeding 100 billion euros, according to proposals posted on their Web sites. Their plans include covering the country with "very high" speed communication networks, developing renewable energies and upgrading the electricity network.

Sarkozy said in an Oct. 15 interview with Le Figaro that aerospace, medical research, universities and small businesses may benefit from the financing. He is following the plan's development through a team led by former Treasury head Xavier Musca, his chief economic adviser.

Electric Cars

The loan "should be used to reduce energy consumption in buildings to save energy that will be used for future electric cars," Gilles Vermot Desroches, sustainable development senior vice president at Schneider Electric SA, said in an interview. He called for investment in solar energies, small wind-power generators, and infrastructure to recharge electric vehicles. "We can't afford to miss the train in new renewable energies."

Paris-based Peugeot, Europe's second-largest carmaker, wants to develop "plug-in" gasoline-electric hybrid vehicles, spokesman Jean-Marc Sarret said.

"Among the many economic sectors that could benefit from the support of this loan, the aeronautics, space, and defense industry mustn't be forgotten," Louis Gallois, chief executive officer of EADS, which is based in Paris and Munich, told the economic affairs committee of the National Assembly on Sept. 29.

France's grand loan should help it develop next generation helicopters, Gallois said. EADS's Eurocopter unit said Oct. 22 that unit sales slumped 70 percent in the first nine months from a year earlier as demand for civil aircraft declined.

Planes, Rockets

Jean-Paul Herteman, the chief executive of Paris-based Safran SA, which makes airplane engines and electronic equipment, told Les Echos newspaper that 2 billion euros would help the industry develop more efficient planes, rockets and helicopters.

At least 3 billion euros would be needed to develop the biotechnology industry, improve cooperation between public and private research, promote telemedicine and help medical- equipment makers, Christian Lajoux, who is chairman of French drug company association LEEM and president of Paris-based Sanofi-Aventis SA's French unit, said in an interview.

The government financing will help accelerate projects "because it decreases their risk profile," Loic Lietar, head of technology alliances, acquisitions and strategic planning at STMicroelectronics, said in an interview. "The whole industry will get aligned much faster than in a normal market economy."

To contact the reporters on this story: Francois de Beaupuy in Paris at fbeaupuy@bloomberg.net

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