Veto Could Address French Defense Ownership Concerns

By Amy Svitak
Source: Aviation Week & Space Technology

As the French state's ownership in and influence over its defense industry wanes, the court asserts the government would do well to borrow a page from U.S. industrial security policy, which since 1988 has allowed the president to decide, by executive fiat, to block all foreign investments in domestic strategic industries that could pose a threat to national security through the Exon-Florio amendment.

Such a move could draw negative attention from the EU, which the audit agency says views Exon-Florio as a protectionist measure. In its report, the agency notes only Italy has put in place a regulation that appears to borrow from U.S. law—a March 2012 decree that limits the government's veto power on ownership changes but provides special powers with respect to defense and national security interests.

The EU for years had pressured Italy to open its domestic markets to foreign ownership, though it remains unclear whether this limited measure, known as the “Golden Power” regulation, will run afoul of the union's rules.

“In the absence, at this juncture, of an Exon-Florio-type regulation, holding stock positions with a majority or blocking minority in these companies, either alone or in participation with other actors, is the favored route, given that state financial means are now limited,” the audit agency says, noting that the French government could reduce defense spending based on a new military strategy expected to be released in the coming weeks.

Short of regulatory reform, Gelain says, such budgetary pressure could induce the French state to reduce government interest in defense companies.

“A key step in triggering some level of industry consolidation in Europe is for the government to relinquish its shareholdings. There are other ways to preserve sovereignty over national security interests without the government being shareholder in these companies,” he says. “Not only would it make good business sense to reduce government ownership, but the state could raise money to sustain the military budget at a decent level . . . by selling these stakes in these companies.”

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