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French Plan to Privatize Banks, Other State Firms

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THE WASHINGTON POST

In its sharpest break yet with Socialist President Francois Mitterrand, France’s new conservative government announced plans Wednesday to turn control of some of the country’s biggest banks, insurance firms and industrial powerhouses over to the private sector.

The vast scope of the French privatization program, which will allow 21 state-run firms to acquire private owners starting this autumn, carries almost revolutionary implications for a West European country that has long reserved for the state a dominant role in crucial sectors of the economy.

The list of companies on the selling block includes some of the biggest employers in France, including the automobile giant Renault, the national airline Air France, the computer maker Bull and the electronics manufacturer Thomson.

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Other prominent firms from the aerospace, chemicals and oil industries, such as Aerospatiale, Rhone-Poulenc and Elf Aquitaine, will also go private. The list also includes international banking powerhouses Banque Nationale de Paris and Credit Lyonnais.

The dramatic transformation proposed by Prime Minister Edouard Balladur is part of his accelerated effort to breathe new vigor into the sagging French economy, which he says he found in much worse shape than expected after he formed his government following March elections that drove the Socialists from power.

Since Balladur’s conservative ruling coalition controls three-quarters of the seats in the National Assembly, the government does not anticipate any difficulty in winning passage for the landmark legislation to privatize much of the French economy.

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The French government’s shift toward the private sector, which follows its declaration to grant greater independence to the country’s central bank, is considered the most radical change in the structure of an industrial economy since Prime Minister Margaret Thatcher’s program of denationalizing Britain.

Unlike Thatcher’s revolution, the French plan will leave untouched the country’s state-run rail and telecommunications services. But the full impact of the program could eventually alter the country’s economy more than at any time since the Industrial Revolution, economists said.

But the latest measures are expected to complicate Balladur’s delicate ruling partnership, or “cohabitation,” with Mitterrand, whose second term as president still has two years to run.

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Until now, the relationship between the 76-year-old Socialist president and his Gaullist prime minister has been remarkably smooth. Mitterrand has found Balladur’s aristocratic style more to his liking than the aggressively ambitious approach of Gaullist leader Jacques Chirac, who headed the government during the first cohabitation in 1986-88 but declined to serve this time in order to concentrate on a future presidential race.

Mitterrand has refrained from criticizing the first stage of Balladur’s economic recovery program. The prime minister first appealed for nationwide sacrifices, mostly in higher taxes on cigarettes and alcohol, to help slash the deficit. This week he changed tack by announcing that France would take out a record $7-billion loan to preserve and create new jobs. He hopes to gain back that amount with the sale of companies in this year alone.

The president has also remained mute about Balladur’s first initiatives to curtail the number of immigrants. The conservatives passed a new law requiring children of immigrants to apply for citizenship once they turn 16, rather than receive it automatically. The government has also stepped up identity checks to catch illegal aliens and deport them to their home countries.

But Mitterrand has vowed that he will fight to protect France’s “social achievements” under conservative rule. Wednesday, he expressed grave concern about the potential impact of turning so many state-run companies over to the private sector. A spokesman said Mitterrand “disapproved” of the government action and “continues to believe it is in the public interest for several large firms to remain under state control.”

Aides said Mitterrand is particularly worried about “savage capitalism” taking root in France, with tens of thousands of people being thrown out of work in denationalized companies if, as expected, the new private owners seek to slash operating costs.

Joblessness in France has reached a postwar record with more than 3 million people out of work, nearly 11% of the labor force.

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Nearly 30% of the French economy is run by the state, second only to Italy in all of Western Europe. But even the Socialists have begun to realize that this figure is far too high if the country hopes to compete in the future with the capitalist explosion taking place in Asia, especially China.

Unlike an earlier, less ambitious privatization effort that collapsed when the conservatives lost the 1988 election, Economics Minister Edmond Alphandery said the current plan, under which sales of companies will begin in the fall and stretch over three years, will not limit the share of foreign ownership in most companies. The earlier plan called for foreigners to hold no more than 20% of a privatized company.

But Alphandery added that his ministry will exercise a “golden share” in sensitive companies so government control will be maintained in matters involving the nation’s vital interests.

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