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EU to act against French "economic patriotism"

Written by: Staff
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BRUSSELS, Apr 2 (Reuters) The European Commission will launch a legal fightback this week against what France calls ''economic patriotism'' but Brussels regards as illegal protectionism to fend off cross-border takeovers.

The European Union executive will start legal action on Tuesday over a French decree restricting foreign shareholdings in 11 so-called ''strategic sectors'' ranging from cryptology and dual-use civilian-military technologies to casinos.

Officials say the Commission will send a letter of formal notice giving France two months to explain how the decree, a centrepiece of Prime Minister Dominique de Villepin's policy of ''economic patriotism'', can be reconciled with EU treaty rules on the free movement of capital and non-discrimination.

If Europe's top business regulator is not satisfied with answer, it can take France to the European Court of Justice to force it to change its law.

The Commission will give itself a bit more time before deciding on possible legal action in two other cases of economic nationalism in the energy sector -- the French government's role in the shotgun wedding of utilities Gaz de France and Suez to fend off a feared bid from Italy's Enel, and a Spanish government move to empower its energy regulator to block a bid by Germany's E.ON for electricity provider Endesa.

Commission President Jose Manuel Barroso and Internal Market Commissioner Charlie McCreevy have vowed to defend the EU's single market against attempts to erect barriers to takeovers in the name of defending national interests.

''European law is not some alien imposition forced on unwilling nations; it is the key which has unlocked 50 years of peace and prosperity for the peoples of Europe,'' Barroso said in a speech last Friday denouncing economic nationalism.

SLOW MOTION The EU executive has already started proceedings against Italy over last year's attempts by its former central bank chief to block foreign takeovers of Italian banks, and versus Poland over a government bid to stop Italy's Unicredito from the Polish leg of the takeover of a German bank.

But Brussels' legal armoury works in slow motion on internal market issues, in contrast to its power to veto mergers on competition grounds.

So it could take several years to force recalcitrant member states to change their laws, by which time some of the mooted cross-border link-ups would be long dead.

The tussle with France is emblematic because Paris is a founder member and was long the most influential power in the EU, but also because the French government is struggling on two fronts with public hostility to the effects of globalisation.

The EU legal action will come on a day when students and trade unions have called a general strike against a new youth job contract designed to make rigid French labour markets more flexible and reduce chronic youth unemployment.

Ironically, De Villepin's unpopular labour reforms are part of an EU drive to make the European economy more competitive, whereas his ''economic patriotism'' policy, which goes against the EU's push for more open markets, is widely popular in France.

While business leaders see economic nationalism as a threat to investment in Europe, Barroso contends it is a symptom of the successful growth of the internal market, with cross-border mergers at record levels in the first two months of this year.

REUTERS CH KP1506

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