French President Emmanuel Macron, seemingly more confident about France’s tepid economy and gridlocked politics after clinching €15 billion ($16.2 billion) in investments from the likes of Morgan Stanley and Microsoft Corp., is eyeing a bigger prize: Building more multinational European champions. Bonne chance, you might say.
In an interview on Monday with Bloomberg Editor-in-Chief John Micklethwait, Macron flagged cross-border deal making as one of many European economic taboos to break in a de-globalizing world dominated by subsidies, tariffs and technological arms races. “We do need a consolidation,” he said, apparently open to the idea of banks like BNP Paribas SA growing bigger and Societe Generale SA being sold. Citing energy, finance and telecommunications, he added: “We do need as well an actual domestic market as Europeans, which is not the case.”
The former investment banker has a point. Europe has some of the globe’s biggest firms and a market of 440 million consumers — and, thanks to LVMH Moet Hennessy Louis Vuitton SE, France also hosts the world’s richest person. But broadly speaking, from stock markets to telecoms to banks, national borders are still holding Europe back. Despite the economy’s similar size to the US and China, its companies have a tougher time gaining scale: The revenue gap between big European firms and their US rivals is around $6 trillion, according to McKinsey, and in flag-carrying sectors like telecoms, airlines and defense, that equates to a 30 percent shortfall.
And yet, as Macron also knows from having himself engaged in all sorts of boardroom bust-ups in Europe, national preferences are very hard to dislodge — even in a time when European unity looks all too mortal. Look at the semiconductor industry, a key front in the Sino-American chip wars. While Europe has a genuine global champion when it comes to high-end chipmaker-equipment supply in the shape of ASML Holding NV, players like STMicroelectronics NV and Infineon Technologies AG look tiny next to Intel Corp and Nvidia Corp. Europe’s market share in chips is about 10 percent, and even the billions in funding being thrown at the industry to raise that number is splintered by nation: The US has allocated $32.8 billion in semiconductor funding and Europe $24.1 billion across three countries (France, Germany and the Netherlands).
The benefits of a more integrated, pan-European sector would be big: A report on artificial intelligence by French experts found that it could unlock an extra €7.7 billion. But there’s a political price that leaders haven’t been willing to pay. With local jobs and geopolitical influence at stake, it’s grim but unsurprising to see reports that Italy’s government is pushing to receive a bigger share of investments made by Franco-Italian firm STMicro. Cross-border deals in chipmaking have recently been blocked on national-security grounds: Mergers and acquisitions data shows semiconductor deal making has been in decline since the pandemic and hit its lowest level in over two decades in 2023. And beyond chips, in sectors like telecoms, European antitrust regulators don’t seem convinced that big mergers would be worth the risk to consumers.
It's not all doom and gloom: Airbus SE, which is outperforming US arch-rival Boeing Co., has shown that even the messiest boardroom politics can eventually be overcome. But Airbus is also the exception that proves the rule: Despite plenty of attempts to recreate Franco-German champions in tech-driven sectors like cloud computing and batteries, none has really taken off.
So perhaps Macron should channel his energy elsewhere to prove his point. One might be to pursue European alliances and joint ventures as a first step towards closer co-operation, similar to the one announced in Germany by Taiwan Semiconductor Manufacturing Co alongside three other European firms. Another is to develop a more sustainable customer base for promising new startups like Mistral AI, whether by incentivizing — or even forcing — big corporate clients to buy European.
And still another is to do what Macron is currently mulling for the financial sector — encouraging risk-taking by lifting barriers to hiring and firing. Olivier Coste, a former executive at teetering one-time IT champion Atos SE, has said that the high cost of laying off engineers in Europe means that tech firms are far more afraid to take risks — storing up long-term problems that hold back investment and allow US firms like Microsoft to stay dominant even in the Old Continent.
Macron has plenty of ideas for the European economy, and megafirms deserve to be on the list. But not all Airbuses are going to fly.
Credit: Bloomberg
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