By Leigh Thomas
PARIS (Reuters) - Fiat Chrysler's abrupt withdrawal of its merger offer for Renault (PA:RENA) lays bare the limits of the French government's interventionist industrial policy, forever struggling to balance political needs with hard commercial logic.
The Italian-U.S. carmaker pointed a finger at the French government after dropping a $35 billion (27.57 billion pounds) merger offer for Renault, in which the French state holds a 15% stake.
While eager to build global industrial champions around French companies, President Emmanuel Macron's government is all too aware of the dangers of ill-matched industrial combinations.
A long and growing list of unhappy results from cross-border deals steered by the French government offers a painful reminder of the nearly impossible task of engineering deals that both make business sense and protect French jobs and interests.
The French government says the Fiat deal fell apart because it was preoccupied with preserving Renault's alliance with Nissan, which the Finance Ministry said therefore meant it required explicit backing from its Japanese partner.
"It didn't have anything to do with the French state's stake, it didn't have anything to do with political intervention," a senior Finance Ministry source said.
But industrial policy expert Elie Cohen said that once again the French state was trying to square the circle of protecting jobs while making the sums add up for promised merger savings.
Political concerns mean that the risk of short-term pain tends to crowd out any thoughts of long-term gain.
"If there is a preoccupation that is always absent, it's the industrial strategy, it's the industrial project, it's industrial policy," Cohen said.
As a result, the French government's decision to be guided by political concerns has left Renault stuck in a stalled alliance with Nissan, said Cohen, an economist at the CNRS public research institute.
POLITICAL RISK
The government shows no sign of abandoning its assertiveness when the future of strategic national industries is at stake.
"We remain open to any industrial consolidation opportunity, but without rushing in order to guarantee the industrial interests of Renault and the French nation," French Finance Minister Bruno Le Maire told the Senate (upper house) in a weekly government questions session.
Though himself a former investment bank dealmaker, Macron can ill afford to ignore the political risks if a big deal involving an industrial icon like Renault went sour.
Under pressure nationally from the far-right and "yellow vest" protests, his government is already struggling to save hundreds of jobs in eastern France where General Electric (NYSE:GE) is planning cuts after buying French group Alstom's gas turbine business in 2014.
Even though the government had secured job creation guarantees at the time, the U.S. conglomerate has since had to renege on its promises in the face of a demand downturn and cut headcount.
Macron's government suffered another industrial setback this year when European competition regulators blocked the planned merger of the rail businesses of Alstom (PA:ALSO) and Germany's Siemens, thwarting French hopes of creating an industrial giant to rival fast-growing Chinese rivals.
European antitrust regulators are now also scrutinising the proposed merger of Italian shipyard Fincantieri with France's Chantiers de l'Atlantique, which the French state helped engineer.
In a country accustomed to state intervention in business, the government can come under fire when it stays on the sidelines and allows company executives to do the dealmaking.
Recent cross-border deals that left the French side as unhappy junior partners as in the case of Swiss cement maker Holcim's merger with France's Lafarge or Italian glasses maker Luxottica's takeover of French lensmaker Essilor have raised questions about whether more could have been done to preserve French influence.
Cohen of the CNRS said the impossible balancing act the state faces when it plays matchmaker ultimately leaves companies vulnerable to growing competition from countries like China.
"The more short-term political considerations pollute industrial strategies and the more the necessary tie-ups are put off, the more European industry will weaken," he said.