Euro Soufflé

France to ArcelorMittal: if you don’t like losing money, get out of France

November 26, 2012
Obsession
Euro Crunch
November 26, 2012

Arnaud Montebourg, France’s Minister of Industrial Renewal since May, is spitting fire at Indian billionaire Lakshmi Mittal, the CEO and primary shareholder in Luxembourg-based steel-making giant ArcelorMittal. The company has said that it would close two plants at its Florange location that would cost 629 workers their jobs, blaming continued sluggishness in the European economy. Montebourg has responded by calling the company unpatriotic and threatening to expel it from the country altogether. This public feud follows the Hollande Administration’s tacit condemnation of plans by automaker Peugeot Citroën to close plants near Paris earlier this year.

However, it’s clear that Montebourg is confusing the culprit with the victim. The continued failure of European politicians to resolve the region’s debt and banking problems for good has finally caught up with companies across the euro area. Those firms that  waited for a more competitive, more integrated, and more stable monetary union have been forced to cut their losses and change their strategies to survive, as politicians bicker at the bargaining table.

ArcelorMittal blamed the European crisis and continued lack of demand in Europe for its decision to downsize, saying it had already tried to put work on hold at the Florange plant in an attempt to keep it open long-term. The company wrote on October 1 (emphasis added):

To date the company had implemented a strategy of temporary idling the Florange furnaces whilst waiting to see if the economic situation would improve.  However after four years of challenging conditions, it is clear that there will be no swift return to pre-crisis levels. Today European demand is still approximately 25% below 2007 levels…

The Florange liquid phase and the slab it produces is not competitive in today’s difficult economic context.  This is due to a combination of factors, including crucially its location 400 kilometres from the nearest harbour as well as the small production output that negatively impacts fixed costs.

However, Montebourg has decided to take this plant closure as an affront to French patriotism rather than acknowledge that the French economy is indeed slowing down. Saying that the steelmaker “has never kept its commitments” (by which he seemed to mean its commitments to try to keep the plants open until the economy recovers), the minister threatened in an interview with French newspaper Les Echos (link in French) that ArcelorMittal may be forced to leave the country (emphasis added):

The problem with the blast furnaces in Florange lies not in the blast-furnaces in Florange, but in Mittal… We do not want ArcelorMittal in France any longer because they do not respect France.

Montebourg has also accused ArcelorMittal of owing an “astronomical” amount of tax to the French government, something the company denies. He has even proposed that France undertake an “interim nationalization” of the Florange plants in order to keep them open in the event that ArcelorMittal cannot find a buyer. ArcelorMittal has said that this would pose a danger to the rest of its operations in France, which provide a total of 20,000 jobs.

Montebourg took a similar tone with French carmaker Peugeot, which was forced to close plants near Paris. Peugeot—with high debt and little post-European diversification—has made desperate attempts to stay afloat as demand for new cars in Europe has tumbled. The company was ultimately offered €7 billion ($9 billion) in state backing for bonds (paywall) issued this year. However, it will still end up closing the plants, which employ 3,300 full-time workers.

Companies that have failed to diversify outside Europe have become increasingly troubled. Those that can—most notably German automakers Volkswagen, Daimler, and BMW—are moving into overseas markets still generating growth (particularly, China, Brazil, Mexico, and the US) and struggling to keep core production centers alive.

Call this lack of patriotism if you will, but it’s also a stab at survival.

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