The recent political drama surrounding Emmanuel Macron’s handling of a private equity takeover of a French company reveals a deeper issue: France’s ongoing underinvestment problem.
The French government has agreed to take a 1-2% stake in Sanofi SA’s consumer health unit, Opella, to smooth the way for a US private equity acquisition. This move is seen as a key test of how open France is to foreign deals, especially in industries considered strategic, such as healthcare.
Opella, which produces the popular painkiller brand Doliprane, is viewed as a symbol of “paracetamol sovereignty.” However, the French government’s efforts to secure job guarantees and retain minority stakes are more symbolic than substantive, offering little in the way of long-term solutions to the country’s broader economic issues. The government’s previous investments in companies haven’t always prevented factory closures or job losses, and they have rarely delivered strong financial returns.
What this situation exposes is the investment gap facing France and Europe more broadly. While the French government is keen to protect “sovereign” assets, such as Opella, the fact that European companies often need to look abroad for capital points to larger structural issues. For example, fragmented European stock markets have hindered local business growth, with Sanofi’s previous spinoff, Euroapi SA, losing 75% of its value since going public in 2022. Similarly, European startups often seek funding in the US, where venture capital is much more readily available.
Europe also faces challenges in its pension system, which is underdeveloped compared to the US European pension fund assets are only 32% of gross domestic product, while in the US they account for 142%. With an aging population and major investment needs, the strain on public finances is evident. Former European Central Bank President Mario Draghi has noted the urgent need for investment in Europe, yet European savings—estimated at around €35 trillion—are mostly funneled into low-risk investments like bonds, leaving equity finance reliant on foreign capital.
The situation with Opella underscores the tension between France’s desire to maintain economic sovereignty and its reliance on foreign investment. Despite the presence of a rival French bidder, the state stepped in to bridge the gap between political rhetoric and economic reality. However, this intervention is more of a temporary fix than a sustainable solution. A report by former Bank of France Governor Christian Noyer highlights that relying on state intervention or bank lending isn’t a viable long-term strategy, given the pressure on public finances.
What France, and Europe as a whole, truly needs are incentives to channel long-term savings into local investments. This will require substantial reforms, especially in countries like France, where the pay-as-you-go pension system remains deeply entrenched. The Swedish model, which reformed its pension system after a financial crisis in the 1990s, provides a potential roadmap. Sweden’s pension funds now play a significant role in private equity investment, and have backed successful ventures such as Spotify.
With input from Bloomberg.
