European Member States in defence of their national industry

Michele Masulli

The economic and financial emergency triggered by the coronavirus pandemic is going to take a long time to overcome. European countries have begun taking steps to meet and deal with this challenge.

From the halt to tourism and airlines companies to the shutdown of non-essential commercial activities, resulting in the collapse in the consumption of various goods (cars and motorcycles, for example) and the stagnation of many industrial sectors, as well as the difficulties in logistics. These are the signs that are drawing a picture of the weaknesses in the production system, both for the domestic and export-oriented markets, victims of the weaknesses of the international markets. Then, when we take into account only the costs and lack of revenues, there will as a matter of course follow the closure of credit channels and bank guarantees.

The Cura Italia Act, with an injection of € 25 billion, is a first boost to not only counteract the emergency in the health sector, but also the production crisis. In addition, it complements similar measures taken in the last few hours by France, Spain, Germany and the United Kingdom, as well as by the European institutions, involving hundreds of billions of euros to protect and revitalize the EU economy.

However, business failure is not the only risk that needs to be averted. There is a more insidious threat in the Old Continent – when the stock market prices of many companies crash, shares become exposed to the danger of climbing. And this high level of vulnerability does not only affect large companies. Italy has a very high number of small and medium companies, gems in the Italian production system, and active in many foreign markets and often listed on the Stock Exchange.

Just a few days ago, a € 240 million tender offer (OPA) was launched by the Japanese company AGC, a giant with 54,000 employees and €7 billion capitalisation of the Mitsubishi group, on MolMed shares, an Italian biotech company that was founded as a spin-off of the San Raffaele Institute in 1996. It landed in Piazza Affari (Milan Stock Exchange) in 2008, and specializes in gene and cell therapy research for the treatment of cancer. Fininvest, the main shareholder with a 23.13% stake in the company, has already agreed to the Japanese offer to sell up its shares. It should be noted that, since January, MolMed, due to the market repercussions resulting from the spread of the coronavirus, has suffered a fall of more than 20% on the stock market, reaching its lowest values in 5 years.

The most clear-cut response to the risks of a downturn comes from the French government, which in recent days has placed €45 billion on the table to reactivate an economy that is expected to fall by 1% in 2020. If, on Monday, in his message to the nation, the President of the Republic Emmanuel Macron declared “we are at war, a health war”, the Minister of Economy Bruno Le Maire made it clear that “there is also an economic and financial war. It will be tough, it will be violent and it must mobilize all our national, European and G-7 forces”, specifying that the government will not hesitate to use “all the instruments at its disposal”. The Minister mentioned the possibility of the recapitalisation or acquisition of shareholdings. “I can use the word nationalisation if necessary,” he said.

The French Financial Market Authority (FMA), taking into account the significant drop in prices, has ordered for the session of March 17 a ban on short selling (then extended for one month) on 92 securities, including those of the big Cac40 index such as Axa, Bnp Paribas, Capgemini, Crédit Agricole, Renault and Société Générale. Also included in the FMA measure are the blue chips of Air France – KLM, which announced a reduction in flight capacity of between 70 and 90% over the next two months, and for which the French and Dutch governments (each holding a 14% stake) are studying ad hoc support measures. A state guarantee worth €300 billion will also be activated to support companies in difficulty, including the support of Bpifrance, the French investment bank.

A more sustained intervention by European states in their economies, however, should not be read as exclusively motivated by the current emergency. Several times in recent months, in the I-Com newsletter, we have highlighted how, starting from Germany, there has been no hesitation in strengthening some instruments to protect national industry and how, in the European debate,  the creation of European champions able to compete in terms of size with  the US and Asian players should be strongly promoted.

And what is Italy doing to fight opportunistic attackers? CONSOB (Italian Companies and Exchange Commission), even before the FMA, had already banned short selling on the Milan Stock exchange. The ban was then extended for three months in order to block any form of bearish speculative operation and strengthened by a stronger transparency on the shareholdings in 48 companies listed on the MTA with a capitalization of more than € 500 million and a large shareholder base. These include the big names among Italian companies – Eni, Enel, Intesa San Paolo, Leonardo, Telecom Italia, Unicredit, to cite just a few.

Furthermore, it is worth mentioning the measures to support Alitalia and the aviation sector in general, with an allocation of €500 million in the Cura Italia act. These resources will be used as compensation for companies holding passenger air transport licences issued by ENAC and, above all, for the rescue of Alitalia – involving the creation of a new company wholly owned by the Ministry of Economy and Finance, or by a company with a majority public holding. The President of COPASIR, Raffaele Volpi, for his part, has sounded the alarm in defence of the strategic economic interests of the country, calling for the rapid identification of adequate financial and legislative tools.

One of the hypotheses is to set up a control room at the Presidency of the Council of Ministers to share information and coordinate decisions for the protection of assets of national importance. There is also a proposal that a maxi shield against hostile takeovers of listed Italian companies, extended to the financial sector, should also be discussed, but being measured against European legislation. Some are planning to extend golden power to a wide range of sectors considered strategic and to set up a recapitalization fund for companies under the protection of golden power, with a central role for Cassa Depositi e Prestiti (Italian investment bank) in this new scenario. The Department of Information Security should also consider the possibility of suspending, until April 15, the submission of applications to the Presidency of the Council to obtain the green light for company acquisitions.

However, it is also a question, at the same time, of containing the explosion of the public debt and protecting it from speculative actions. The BTP-Bund spread exceeded 320 points on Wednesday, and then collapsed after the announcement by the European Central Bank of the € 750 billion Pandemic Emergency Purchase Programme. It may also be opportune here to impose a suspension on rating agencies, as proposed by Milano Finanza.

Ricopre attualmente il ruolo di Direttore dell’area Energia presso l’Istituto per la Competitività (I-Com), dove è stato Research Fellow a partire dal 2017. Laureato in Economia e politica economica presso l’Alma Mater Studiorum – Università di Bologna, successivamente ha conseguito un master in “Export management e sviluppo di progetti internazionali” presso la Business School del Sole24Ore. Attualmente è dottorando di Economia applicata presso il Dipartimento di Economia dell'Università degli Studi di Roma Tre. Si occupa principalmente di scenari energetici e politiche di sviluppo sostenibile, oltre che di politiche industriali e internazionalizzazione di impresa.

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