And speaking of national involvement, here is the FT on how French President Nicolas Sarkozy is keen on the French government retaking the commanding heights by creating state-owned titans. Naturally, cue up "We are the [French National] Champions":Alleged illegal government subsidies to Boeing, the US aircraft maker, have cost its European rival, Airbus, some $27bn in lost revenues over the past three years, the European Union claimed on Wednesday at the World Trade Organisation, in the latest salvo in the bitter transatlantic dispute.
An EU statement released ahead of a WTO panel hearing into the EU case against Boeing said “lavish subsidies” had allowed Boeing “to engage in aggressive pricing of its aircraft, which has caused lost sales, lost market share and price suppression to Airbus on a number of select markets”. [No; it's because Airbus put its eggs on the underwhelming A380 while Boeing on the hugely successful 787 Dreamliner.] Brussels puts the subsidies to Boeing between 2004 and 2006 at about $5bn.
The claim was immediately rejected by Washington, whose own complaint against alleged illegal subsidies to Airbus is also before a WTO panel.
Pointing out that Airbus has gained 20 percentage points of market share from Boeing since 2000, Gretchen Hamel, US Trade Representative spokeswoman, said: “The EU has provided no basis to believe that the alleged subsidies have harmed Airbus.”
The EU’s WTO complaint challenges alleged illegal subsidies totalling $23.7bn that Boeing has received or is in line to receive since the mid-1980s and up to 2024 by way of federal and local tax breaks, and research contracts with the US Department of Defense and the National Aeronautics and Space Administration (Nasa).
However, Ms Hamel said on Wednesday that “the EU’s claims are to distract attention from its own massive subsidies”.
In the US case against Airbus, on which hearings have already been held, Washington argues that the $15bn of launch aid provided by France, Germany, Spain and the UK for the development of the Airbus fleet have amounted to a subsidy of more than $200bn compared with loans on commercial terms.
The EU has dismissed this suggestion as “ridiculous and absurd”.
Many experts believe that the outcome of the two cases, the most complex and costly the WTO has ever dealt with, will be a condemnation of both sides, or “mutually assured embarrassment”, as one EU official put it at the outset...
Nicolas Sarkozy was at the Paris air show on a hot summer’s day in June when, in a speech laying out his vision for French industry, he threw out this simple phrase: “In economics, my only ideology is pragmatism.” Few outside France took note. But perhaps they should have done.
In recent weeks the French president’s pragmatism has led to the planned creation of a €70bn ($98.8bn, £49bn) power giant through the merger of state-owned Gaz de France and private utility Suez that will present a strong challenge to foreign competition in the French energy market.
His government is now turning its attention to Areva, the state-owned nuclear group, where it is mulling how to ensure French dominance of this growing market through a combination with home-grown companies such as Bouygues, Alstom, Total and EDF.
Finally, the industrial architects working away in the president’s Elysée palace are examining the potential for a third merger to create a French champion – this time in the defence sector – by bringing together Thales and Safran, two companies where the state has minority stakes.
All this national champion-building, added to the French president’s campaigns against the European Central Bank and European Union competition policy, has some of Mr Sarkozy’s European partners deeply worried.
The third feature has me scratching my head a bit as Warner Communications aims to establish a media center in Abu Dhabi, of all places. Call it a sign of the times. Perhaps media for the Middle East market is exceedingly particular--so much so that they need to create a presence there. In any event, government involvement probably means you won't see NC-17 and R rated content coming out of the UAE:
Warner Brothers, Time Warner’s film and TV division, has launched an “unprecedented” multibillion-dollar partnership to develop a media and entertainment hub in Abu Dhabi virtually from scratch.
The project, which is being undertaken with Aldar, Abu Dhabi’s largest real estate developer, and the emirate’s new Abu Dhabi Media Company, will include the simultaneous construction of a 6,000 acre theme park, hotel and cinemas as well as the creation of special funds to produce Arabic-language film, TV and video games.
Abu Dhabi will also establish a fund of $500m to co-finance production of Warner films – a figure that could grow over time.
Time Warner declined to comment on financial aspects of the deal, but said it was unprecedented in the scope and breadth of activities being undertaken. It is also significant, they said, in that it marked a long-term commitment to the Middle East by Hollywood’s largest studio.
“For our company and its further globalisation, growth for us is not just in . . . domestic markets. It’s largely outside the US,” said Dick Parsons, chief executive of Time Warner.
Lastly, here is news of a timely development. Just as accounting firms were limited from peddling accounting services to clients in the wake of the Enron, Worldcom, and Tyco scandals, so too are credit rating agencies feeling the heat over rating firms while at the same time offering them (paid) advice on how to improve their ratings. It's a drrty business model that they're trying to push and it's about time they cleaned up their act, I say:
Credit ratings agencies need to separate their rating and advisory functions because of conflicts of interest in their relationship with Wall Street, the newly appointed head of a high-level government advisory panel said on Wednesday.
Eric Mindich, who was named on Tuesday as head of a private sector group advising the White House, said investor confidence in the ratings agencies had been “severely damaged” and that their business model had inherent “serious conflicts”.
“I do not think that the market can discipline ratings agencies sufficiently,” said Mr Mindich, chief executive of Eton Park Capital and a former colleague of Hank Paulson, the Treasury secretary, at Goldman Sachs, the investment bank.
Mr Mindich said he was concerned that agencies issue ratings and also advise issuers of securities on how to secure better ratings. He suggested it might be necessary to separate those functions or require agencies to provide detailed disclosure of their contact with clients.
Lawmakers and investors criticised the companies for giving high ratings to subprime securities and failing to act quickly when borrowers began defaulting on loans backing the bonds...
Vickie Tillman, executive vice-president at S&P, defended the “issuer-pays” rating model, in which companies that issue securities pay the ratings agency to assign credit ratings. The executive said it was the only one that allowed ratings agencies to develop costly ratings procedures without charging investors high subscription fees.
Larry Summers, the former US Treasury secretary, said there were obvious conflicts of interest in the ratings industry: “If you are hired by someone at twice your regular fee to work collaboratively with their people to design a security that will receive a triple A rating from yourself” you are likely to deliver certain results. “There needs to be a lot of cleaning up in this area.”