France and Italy: How Landlubbers Can Mess with Naval Industries

Controversy’s a brewin’ in Europe, and for once it is not between Brussels and London. I am talking about the shipyard that was nationalized Thursday by French President Emmanuel Macron. Let us take advantage of the opportunity and dive into the mind of Macron. Allons-y!  

Located on the Atlantic Coast, the shipyard Saint-Nazaire was the 2016 birthplace of the Harmony of the Seas, the largest cruise ship in the world, as well as France’s nuclear-powered aircraft carrier, the . The primary goal of Macron’s nationalization was to stop Fincantieri SpA, an Italian shipbuilder, from taking over STX France, a French shipbuilder. As always, other factors are probably at work. Below are a list of a few that have certainly ran through Macron’s head at some point.

  1. China. Fincantieri already agreed with the China State Shipbuilding Corporation to help develop China’s cruise ship industry. According to Fincantieri, no technology will transfer to China under their agreement.
  2. Jobs. Another Italian company, CR Triest, holds a stake of about 6% in the shipyard. Macron could fear that the two Italian companies will work together. Fincantieri agreed to buy a 48% stake, so between the two, they could create an effective controlling stake. Though the current orders placed at the shipyard indicate that job opportunities will exist for the coming 11 years, Economy Minister Bruno Le Maire has said that he wants to strengthen prospects further. He travelled to Rome yesterday to do just that, though there is still little sign of progres.
  3. Defense: This shipyard contains deep enough waters to build aircraft carriers, the only shipyard in all of France.    

This is one of many acts that have confounded French businessmen. For instance, earlier this month Macron came under fire for abandoning his campaign promise to cut taxes. As someone who enjoys responding quickly to criticism, he changed directions quickly. Unfortunately, this led his team to decide to cut military spending, which broke a different campaign promise and led to the resignation of the defense minister. Now, with his popularity ratings slumping back down to a mortal 54%, Macron is trying to regain support for the labor reforms to come later this year. After all, he ran into controversy again this week for boxing Italy out of a meeting with the different Libyan leaders – a realm where Italy has traditionally held the most sway. They were gaulled by France’s lack of consultation with them over the matter. Human rights groups have riled against setting up “hotspots” for pre-screening in Libya as well.

My favorite analysis came from the top pollster at the firm Ifop, Jerome Fourquet, who said, “Macron is pragmatic, and the nationalization of the Atlantic Shipyards is a message to France… Politically, he can’t deregulate the economy and not offer any guarantees to French voters. He is at the start of a major labor reform, he is cutting state welfare and tells industry workers he isn’t Santa Claus. So he knows he must give back by protecting a symbolic and historical industry. This is positive for him at home.”

French President Emmanuel Macron, European Council Meeting 22-23 June 2017 by European Council, Flickr Creative Commons 

We all know that Macron is not Santa Claus (Paris is much too far from the North Pole for that to be viable) but the analysis cuts at something else – the importance Macron assigns to these labor reforms. But will he be able to make it to September in one piece? Every day more journalists report that Macron’s government is in crisis. Again showcasing Macron’s desire to make quick U-turns, on Friday the Elysee Palace claimed Macron had been misunderstood during his announcement about the so-called hotspots. $13 billion in budget cuts, $3 billion higher than promised, still sit on the table as well.

However, Macron is a suave political operator. Even if he is the youngest French leader since Napoleon and was elected from outside the two main parties, he still has experience as the Minister of Economy. He knows that he will have to maintain political capital for the coming labor reform efforts. If he reads The Economist this week, he will find an article examined the forces that have weekend and moderated the nation’s labor unions. As the article concluded, “If Mr. Macron can keep Mr. Berger [head of France’s largest labor union, the CFDT] and his allies onside, he has a good chance to get his reforms through.” Maybe Macron will be the French leader to finally succeed at shrinking the budget deficit and bringing labor reform.

Italy is probably feeling betrayed by France’s actions. Looking for allies against more stringent eurozone members, assisting their work on migration issues, and stemming the tide of euroscepticism, France is not the supportive partner that was wished for. As was probably inevitable, Macron looks to be tightening relations with Germany, the most hawkish Eurozone country in terms of monetary policy; and though seizing the shipyard is not directly eurosceptic, it certainly goes against the spirit of the agreement. Italy might yet come out ahead. Not only is the nationalization of the shipyard temporary, but Macron’s closeness to Berlin may have a welcome side effect. Though Italy wanted closer cooperation with France, they could still benefit if Macron can help push through eurozone reform with Chancellor Merkel. The Euro infrastructure is still only half-built and Italy could gain from the reforms.

Back to Macron. If he is worried about the 2,500 jobs at the port, there are certainly other options that can be pursued to protect naval jobs and infrastructure. For example, the US has used the so-called Jones Act. While the act has some unsavory side effects (best left for another day) it undoubtedly keeps the US merchant marine in business. Angering 60 million potential investors (Italy’s population) is a high price to pay for saving 2,500 jobs that are safe for at least the next 11 years.

Likewise, aircraft carriers could be on the way out. This article from 2011 looks at Navy Capt. Jerry Hendrix’s view that smaller ships are necessary for the future of more drawn out, low intensity wars. Aircraft carriers have been controversial ever since the so-called Admirals Revolt in 1949. Why pool all of your resources together in one place when that makes them easier targets? Of course, other authors, like Dr. Robert Farley, have explored how the seemingly benign procurement process could mark the end of the aircraft carriers. A $13 billion dollar price tag, not counting the aircraft, is… substantial. Or we can cite another article listing different threats to the concentrated value that makes aircraft carriers such high-profile targets.

The China argument is interesting as well. If Fincantieri is right, China will receive no sensitive technology. Even then, nationalizing a port is a strong, high profile response. The Pentagon invited China last May to take part in the 2018 multi-national RIMPAC maneuvers with the goal of building understanding and trust. However, if China keeps reading strong anti-East messages from Western countries (e.g. French shipyard nationalizations), that understanding is unlikely to build and they could decline the offer. This is the third RIMPAC invite sent to Beijing.  

But if carriers do become less important, if the labor unions are tameable, and if the threat (real or perceived) of technology transfer to the Chinese is mitigated, is it worth the trouble of nationalizing the port? Though I am not French, it seems as if Macron turned a non-issue into front page news. Don’t fix what isn’t broken, and all that. Domestic politics usually superseeds foreign affairs, and as such, Macron foresaw the 70% approval rating this particular action would receive and went for it. Still, it is worrisome to make enemies out of natural allies. It is no compliment when EU officials call Macron’s maneuvers “Trump moments.” Give credit to Benjamin Haddad for foreseeing a month and a half ago that “Emmanuel Macron is No Anti-Trump.” The once heralded savior of the liberal West is turning out to be a bit more complex.

Macron is an interesting leader because he has projected the image of a globalist, but he has now resorted to traditional nationalist actions. In a world no longer divided between left and right, but now (in large part) globalist and nationalist, he wants to have his cake and eat it too. Similar to Charles de Gaulle, Macron is trying to rule above party politics and unite France into a more cohesive whole. But partisan politics are a French staple of the last few decades. After all, Jean Luc Mélenchon, an opponent of Macron’s in the election, is already calling for protests in September. If Macron can balance between the demands of these camps then maybe, just maybe, he can form some understanding in this divisive political landscape we find ourselves in. What a happy world that would be.

Featured Image: Aircraft Carrier John F Kennedy by Kevin Burkett, Flickr Creative Commons 

15368792_10209288599705219_152877555_oAndrew Cech is a Master’s candidate at the Patterson School of Diplomacy and International Commerce, majoring in International Commerce and Economics. When not climbing rocks or playing the cello, he enjoys reading the latest news over economic development, trade relations, and international agriculture.

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