Socialists in U-turn over £5bn sale of Telecom

By Susannah Herbert, The Daily Telegraph, 27 June 1997

Paris— France's Left-wing government plans to sell almost half of France Telecom this autumn, backtracking on an election promise to halt privatisations.

The U-turn has been forced on Lionel Jospin, the Prime Minister, by the need to reduce France's growing state deficit in time to meet the deadline for joining the single currency.

The sale will be opposed by the unions and the Communist Party—the Socialist party's partners in government. The Communists and Socialists signed a declaration in April, pledging to defend public services by stopping all privatisations.

The government's policy shift—confirmed by the finance minister, Dominique Strauss-Kahn—is linked to panic about the ballooning deficit. M Strauss-Kahn told Socialist MPs this week that the 1997 deficit was likely to be between 3.6 and 3.8 per cent of France's total output—a far cry from the target figure of three per cent set by the Maastricht Treaty as a condition for monetary union.

The 50 billion francs (£5.3 billion) expected to be raised by the sale of 49 per cent of France Telecom cannot be used directly to pay the deficit, but will go into ailing state industries. Thanks to a fudge devised by the last government, however, the state stands to inherit a one-off windfall of 37.5 billion francs (£4 billion) from the France Telecom pension fund, which will be transferred to state coffers in return for a state commitment to look after the company's pensioners. This sum—equivalent to 0.5 per cent of France's total output—is essential if France is to enter the single currency.

The privatisation plan, which awaits M Jospin's final approval, represents a return to the policies of the defeated centre-Right government of Alain Juppe, whose plans to sell France Telecom shares were interrupted by the snap legislative elections. Unlike M Juppe, however, M Jospin is expected to consult the firm's 170,000 employees.

Yesterday, Christian Pierret, the industry secretary, said: Lionel Jospin has indicated that the staff will be consulted, but that does not necessarily mean a referendum.

The dilemma posed by France Telecom's future is simply one aspect of the biggest challenge facing M Jospin's government: the reconciliation of his expensive campaign promises with a commitment to the single currency that obliges him to shrink the deficit. So far, M Jospin's response has been procrastination: he has said he will not present a budget to parliament until November, by which time he hopes economic growth will have picked up enough to save him from taking unpopular action.