(Bloomberg) -- France, which urgently needs to bring down its growing debt mountain, is facing calls to tap into the country’s €52 billion ($57 billion) stock portfolio rather than increase taxes.
Gerald Darmanin, a former budget minister under President Emmanuel Macron, raised the idea in an interview this month, and investment research firm AlphaValue also advocated for the move in a recent blog post.
France’s APE shareholding agency owns stakes in companies ranging from defense contractors Thales SA and Safran SA to automaker Renault SA and lottery operator FDJ. New Prime Minister Michel Barnier, who proposed €60 billion of spending cuts and tax increases last week in unveiling his first budget, made no mention of selling stock.
“I am really surprised there’s been no move in that direction,” Pierre-Yves Gauthier, president of AlphaValue, said in an interview.
While Parliament is embarking on an acrimonious battle over the budget, selling shares would create its own political storm. France has a long history of interventionist policies, keeping a firm hold on strategic industries such as defense and big employers such as automakers, and many lawmakers would be opposed to relaxing that grip.
In addition to APE, which owns stakes in industries that are deemed strategic, the state also operates its own for-profit investment bank, Bpifrance, that has equity investments.
The Finance Ministry, which oversees APE, didn’t respond to a request for comment.
Darmanin, who most recently was interior minister in the last government, cited APE holdings such as FDJ and telecom operator Orange SA, as well as another automaker, Stellantis NV, held by Bpifrance.
“It would be better to sell these stakes rather than raising the corporate tax,” Darmanin said in the interview with French business daily Les Echos. “The state has no place there.”
Gauthier in the blog post argued that the government should liquidate all the shares, noting the historically high premium investors now demand to hold French sovereign bonds.
Given the dire state of public finances, “the rationale for sticking with these holdings is nil,” he wrote. “The new French government would give a good signal to worried global markets.”
To be sure, a one-time cash inflow would do nothing to address France’s structural financial problems of high spending on services such as health care, its already high taxes and a swelling budget deficit. Under European Union rules, one-off items don’t count towards reducing the deficit.
There’s a case, in a time of public finance stress, to trim some holdings, said Eric Meyer, head of RBC Capital Markets in France. Yet a flurry of constraints drastically limit the scope of what’s actually doable, he said.
The French state has governance agreements in companies such as plane-maker Airbus SE where it must maintain a degree of ownership, he said. In other cases, France would be giving up a lucrative stream of dividends, Meyer said. The state received €1.6 billion of dividends last year from listed companies, according to APE’s annual report.
There’s also the risk of selling shares at a low point in the market.
“Less than perfectly timed divestments may happen but all in all, anything above €2 billion to €3 billion proceeds would prove a big challenge,” Meyer said.
Governments across Europe have been busy lately shedding stakes in banks bailed out during the 2008 financial crisis. Yet many politicians in France say public opinion supports state intervention, particularly after the pandemic and the energy price crisis triggered by the war in Ukraine.
“The succession of crises and the new economic paradigm strengthen the legitimacy and usefulness of the state, a strong and stable shareholder,” APE head Alexis Zajdenweber wrote in the annual report.
In the latest example of how France is more likely to be a buyer than a seller, the state is considering taking a stake in the consumer health business that drugmaker Sanofi is in talks to sell to US buyout firm Clayton Dubilier & Rice.
--With assistance from Ania Nussbaum and William Horobin.
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