Job cuts in distressed economy pit Hollande against ArcelorMittal

Written by New York Times | Paris | Updated: Nov 29 2012, 08:37am hrs
It has been only a month since the French government, concerned about the countrys declining competitiveness, began its 'Say Oui to France' advertising campaign to attract foreign investment. But ArcelorMittal, the Luxembourg-based company headed by India-born billionaire Lakshmi Mittal, the worlds biggest steel maker, has been hearing a distinctly harsher message.

We don't want Mittal in France because they havent respected France, industry minister Arnaud Montebourg said in an interview published this week in the daily Les chos, unable to conceal his frustration over the companys plan to scale back one of its three major French factories and eliminate hundreds of jobs. He called for temporary nationalisation and resale of the steel plant at Florange, in the eastern region of Lorraine.

The ugly dispute pits the French state, in its traditional role as defender of industry, against a company that is trying to reduce capacity in line with the slowdown in the European economy and to cut its $23-billion debt after Moodys cut its credit rating to junk. The company wants to close two mothballed blast furnaces at the Florange plant, cutting 629 jobs, while continuing to operate a part of the facility that processes steel for the car industry. Currently, the facility as a whole employs 2,700 people. In all, ArcelorMittal employs about 20,000 people in France.

With unemployment hovering above 10%, the Socialist government of President Franois Hollande is desperate to avoid more layoffs by name-brand companies. Several big employers, including PSA Peugeot Citron, Air France and Sanofi, have announced big job cuts this year. But some analysts say that by taking such a strongly interventionist stand to protect steel workers, France risks sending the wrong signal to multinational companies, whose investment the economy needs if it is to stave off long-term decline. Hollande and Lakshmi Mittal, who serves as chairman and chief executive of ArcelorMittal, met on Tuesday evening at the lyse Palace in Paris, but did not resolve the dispute.

Afterward, . Hollandes office issued a communique saying the president had reaffirmed his desire to insure the sustainability of jobs at the site and presented the different possible options. The statement said the discussions would continue.

ArcelorMittal spokesman Giles Read also said the discussions would continue, but declined to comment further.

To promote France as a destination for foreign investors, the government recently hired the French advertising giant Publicis to create the international 'Say Oui to France' campaign, which is running in the United States, Canada, China, India and Brazil.

A glossy brochure notes proudly that France is already home to 20,000 foreign companies and as recently as last year was the leading destination for corporate foreign investment. Our objective is to leverage Frances attractiveness to remain a key investment destination in Europe, the brochure says.

But in fact, France is hemorrhaging industrial jobs to such an extent 750,000 in the past decade that in a government-commissioned report made public this month, Louis Gallois, a prominent businessman, called for a competitiveness shock to stanch the bleeding.

That is why critics say Montebourgs hard line against ArcelorMittal is the wrong message at the wrong time.

The image France is projecting is disastrous, said Nina Mitz, a public relations consultant in Paris with deep ties to past Socialist governments in France. While she conceded the Florange factory case presented a political thicket for the Hollande government, Mitz said such bold talk of nationalisation even if served up mainly for domestic consumption sends a frightening message, particularly to investors from other countries.

The governments stance has invited ridicule from some opportunistic critics. Boris Johnson, the outspoken mayor of London, alluded to the Montebourg threat on Tuesday, telling Indian business leaders they should not wait to be persecuted by the sans-culottes in Paris, but should rather bring their business to London.

Montebourg has since moderated his remarks, saying his objection was to Mittals methods, which he described as failure to keep promises, blackmail and threats.

ArcelorMittal has agreed to give the government until Saturday to find a buyer for the furnaces, offering it for a symbolic single euro, despite scepticism that a buyer would be interested in anything less than the entire factory. Indeed, Montebourg now insists that the company agree to sell the entire plant. He says that two companies are interested, but has declined to identify them.

Mittal, who built ArcelorMittal from the 2006 merger of his Mittal Steel with Arcelor, then the largest European steel maker, promised at the time to help modernise the European steel sector, but the company says that the Florange facility was already slated for closure under Arcelor, its previous owner. This week he has countered the Montebourg threat with a warning of his own, saying in a statement that any sale of the entire Florange plant would jeopardise the viability of the rest of ArcelorMittals operations in France.

Initially dismissed as rhetorical arm-twisting by Hollandes Socialist government, Montebourgs talk of nationalisation has now garnered support from across the French political spectrum. On Tuesday, Henri Guaino, a close political associate of Hollandes predecessor, Nicolas Sarkozy, revealed in an interview with the business newspaper Les chos that Sarkozy had himself grappled with the question of whether to temporarily nationalise another ArcelorMittal facility, in the eastern city of Gandrange, in 2008.

The Sarkozy government ultimately failed to find a suitable private investor to take over the Gandrange plant and ArcelorMittal closed the site a year later, resulting in the loss of nearly 600 jobs and no small amount of political face for Sarkozy.

In the interview, Guaino said the steel maker had acted in bad faith, adding: One can ask the question of whether we were right to have trusted Mittal.

There are precedents for nationalisation, including the late Socialist President Franois Mitterrands takeover of most of the banking sector in 1982, fulfilling a longstanding Socialist policy goal, and analysts said there was no legal impediment to such a move.

Asked in 2011, as ArcelorMittal was discussing the closure of a plant in Lige, Belgium, if European Union treaties prohibited nationalisation, the European competition commissioner, Joaqun Almunia, said that the rules required only that the state act as a private enterprise would in the market, paying the owner the full value of the nationalised property and seeking to make a profit.

The most likely obstacles might be financial: At a time when France is raising taxes and freezing spending to meet budget targets, an open-ended commitment to a potential financial sinkhole would seem to be a risky proposition.

Whatever the outcome of the dispute over Florange, no one doubts the gravity of the problems faced by ArcelorMittal. Since the companys creation in the easy-credit days of 2006, it has been beset by the financial crisis and now the current slump in Europe. Its steel shipments fell 8.3% in the third quarter of this year from the previous three months, and it reported an operating loss of 643 million euros for the first nine months of 2012.

Analysts do not expect any significant improvement in European steel demand before 2014.

ArcelorMittal, which accounts for about 6% of world steel production, is trying to return to profitability by shutting down excess capacity. The Florange site, it argues, is too far from sea transport and too costly to supply under current conditions.

The company says it would supply slab steel from its plant in Dunkirk, on the English Channel, for processing at Florange.

Workers at the Dunkirk plant, for their part, are already complaining that one of the plants three blast furnaces has been shut down longer than the company had said, and expressing concern that what happened to Florange will be their lot next.

The state cant remain indifferent to the loss of the steel industry, Guaino said in the newspaper interview. Its a strategic sector where we have a considerable technological advantage.