View from City Road: French sell-offs come with snags

The new French privatisation programme is driven by motives many British people would recognise. The centre-right government believes private ownership is more efficient than public, although it prefers to keep its monopolies in the public sector. Hence the absence of electricity, gas, and France Telecom.

But the government also needs the money. Along with the new pounds 4.7bn state loan, privatisation sales will help fund a fiscal expansion to bolster the economy. Up to pounds 5bn could be raised this year.

Some of the list looks more hopeful than realistic. Air France and Renault are companies whose accounts hardly lend themselves to flotation quite yet. But even these long shots may eventually make it. Edouard Balladur, the Prime Minister, persists in the belief that his government will be in power for the full five-year legislature that began after the right's landslide in parliamentary elections two months ago.

To kick off, investors are likely to be offered shares in part-privatised groups such as the chemicals combine Rhone-Poulenc and the aluminium producer Pechiney. At home, the government plans tax breaks to whip up enthusiasm among small investors, though the authorities will be fighting an uphill battle, given the burnt fingers many suffered as a result of the crash of 1987.

But even if domestic buyers turn out in force, the limited liquidity available in the Paris market means attracting international investment will be vital. That was one reason for the government's decision to abandon limits on the shares made available to foreign investors.

Nevertheless, foreign investors will be right to be wary. The government still intends to retain a 'golden share' in some companies regarded as sensitive, and will doubtless ensure that significant stakes end up in 'friendly' hands. On top of which, the downturn in the French economy and swingeing increases in the employment taxes paid by companies are set to depress corporate profits. The many insurance companies and banks planned for early privatisation face particular problems because of the Paris property crisis. Investors might do better to put their money into the merchant banks, which seem set to make a killing advising on the French sale of the century.