Finance
France Looks to Block US Purchase of Velan’s Nuclear Business
Velan is due to be bought by Flowserve as part of bigger deal, but French-backed fund is expected to take over Segault SAS soon,
Bloomberg reports.
The move comes as President Emmanuel Macron urges Europe to develop more autonomy to make the continent more independent in future crises.France and other European countries are also re-thinking their supply chains to bring production of key equipment and technologies back to the region.
France is looking at ways to prevent Velan SAS, a domestic supplier of parts for nuclear reactors, from falling into US hands as it aims to protect a strategic industry.
The business is a French unit of Quebec-based Velan Inc., which is being taken over by Flowserve Corp.in an all-cash transaction valued at about C$329 million ($247 million).The deal was expected to close by the end of the second quarter and has been delayed.
French nuclear-submarine parts supplier Segault SAS has already been carved out of that deal following government efforts to bring a key technology into domestic ownership, with a fund lined up to buy it in the coming weeks, according to people familiar with the matter.
Paris has now turned its focus to Velan’s business in France and could either block its purchase or set restrictions, said one of the people, who spoke on condition of anonymity about private discussions.A decision is expected soon.
Some French lawmakers have been sounding the alarm about the Flowserve takeover and its possible impact on businesses in France.Velan SAS, formerly part of Alstom SA, supplies parts to state-owned utility Electricity de France SA.
“It’s not just defense industries that are strategic — the nuclear industry is key for France’s economic recovery and its transition,” Marie-Noelle Lienemann, a Socialist senator, told Bloomberg.“If the US gains control over a maker of equipment for EDF, they could be able to prevent the export of French nuclear reactors to China.”
Velan, which reported a loss in the first quarter, generates about 25% of its revenue in France.Its French unit supplies valves and services for nuclear power, cryogenics, liquefied gases, marine, superconductivity and space with more than 300 nuclear power plants equipped worldwide, according to the company.
Segault is a key supplier to French state-owned nuclear-propelled submarine maker Naval Group and provided equipment for the Charles de Gaulle aircraft carrier.
America’s love of sanctions will be its downfall,
stresses ‘Foreign Policy’.
In the past two decades sanctions have become the go-to foreign-policy tool of Western governments, led by the United States.But objective processes and guardrails must be built to ensure that sanctions are considered rationally and that they don’t undermine national interests.
According to a database maintained by Columbia University, a total of six countries — Cuba, Iran, North Korea, Russia, Syria, and Venezuela — were under comprehensive U.S.sanctions, meaning that most commercial and financial transactions with entities and individuals in those countries are prohibited under U.S.law.
An additional 17 countries — including Afghanistan, Belarus, Democratic Republic of the Congo, Ethiopia, Iraq, Lebanon, Libya, Mali, Nicaragua, Sudan, and Yemen — are subject to targeted sanctions, which indicates that financial and commercial relations with specific companies, individuals, and, often, the government are forbidden under U.S.law.
By 2021, according to U.S.Treasury Department’s report, the United States had sanctions on more than 9,000 individuals, companies, and sectors of targeted country economies.In 2021, U.S.President Joe Biden’s first year in office, his administration added 765 new sanctions designations globally, including 173 related to human rights.
All told, the countries subject to some form of U.S.sanctions collectively account for a little more than one-fifth of global GDP.China represents 80 percent of that group.
Now, a growing coalition of autocratic governments is seeking to rewrite the rules of the global financial system — largely in response to the ubiquity of U.S.sanctions.It’s time to reconsider how these punitive measures are eroding the very Western order they were meant to preserve.
Unlike many among these sanctioned nations, China has the economic weight, growing diplomatic clout, currency stability, and liquidity — at least for now — to push for the increasing international adoption of the renminbi and Chinese financial schemes, such as its Cross-Border Interbank Payment System.
But Chinese-led parallel financial arrangements bring significant systemic risks for the United States and its allies.
One is the rising number of non-sanctioned countries in the global south that are joining a parallel anti-sanctions world economy.Returning from his April trip to Beijing, Brazilian President Luiz Inácio Lula da Silva repeated his support for a trading currency among the BRICS countries (Brazil, Russia, India, China, and South Africa).In raising the initiative, Lula cited his concerns about a dollar-dominated global economy, where the United States leverages the dollar’s dominance for its punitive foreign policy.
Within the BRICS club — which at least a half-dozen other emerging economies are queueing to join — only two countries are under some form of sanctions: China and Russia.The other three, in particular India, are countries the United States has growing partnerships with and are thus unlikely to come under U.S.
sanctions anytime soon.In other words: Even U.S.partners are hedging their bets against Washington’s extraterritorial sanctions policies.
Lula’s promise represents a genuine, growing desire among many members of the global south to break free of the dollar’s dominance and the U.S.financial system, even if some of those reasons stem from misplaced solidarity.It’s time for Washington to recognize that its love of sanctions may be undermining its own economic and diplomatic power worldwide.
Beyond the still incipient — but likely to endure — efforts to displace the dollar, there is a more immediate threat to Western influence: secondary sanctions on the purchase of distressed debt.
When countries default on their loans — or appear to be close to default — large institutional lenders will seek to offload that debt on secondary debt markets to other investors for a fraction of the price.When those countries are under U.S.sanctions, Western investors are reluctant to buy their distressed bonds—and shadier, often U.S.-antagonistic actors tend to step in.
According to one source at Mangart Capital — a hedge fund in Switzerland — 75 percent of Venezuela’s original debt from 2017 was held by U.S.interests; today, that amount is estimated to have declined to around 35 percent to 40 percent.
A large share has moved to mysterious investors in unknown jurisdictions.This trend becomes a geopolitical threat when a firm or government opposed to U.S.and Western interests could gain control over energy supplies and infrastructure, as could be the case in Venezuela.
U.S.policymakers are unlikely to seriously reconsider their love affair with sanctions anytime soon.
Their application is easy, cheap, and less dangerous than the threat of military action.
Sanctions have become the all-purpose tool of statecraft, meant to convey opposition to everything from military invasions to human rights abuses to nuclear proliferation to corruption, irrespective of whether they help or undermine long-term U.S.interests.
These should include a nonpartisan process to review and compare the effectiveness of sanctions to their stated goals.
As we have seen in Cuba, Iran, North Korea, and Venezuela, sanctions do not produce the quick intended result of regime change (sic!) but, over time, instead reinforce alliances among targeted regimes.
United States and Europe could breach and set a dangerous precedent, experts say.The United States are even ready to change their laws.
The United States and Europe have wrestled for months with the question of how to pay for Ukraine’s reconstruction from the war, …the estimated costs have swelled to $500 billion, with some experts citing numbers as high as $1 trillion, notes The New York Times.
One solution seemed brilliant in its simplicity: What better way to foot the bill, and to make a moral point, than to make Russia pay?
But that has proved far more difficult than first imagined, and it appears less and less likely.Experts warn that it would likely violate international law and potentially set a dangerous precedent for countries to take the assets of others.
The money once seemed easily within reach — since the beginning of the Russian invasion, Western nations have frozen more than $330 billion in Russian Central Bank assets held abroad.
Leaders of the Group of 7 nations, the world’s biggest economies, said this month that the frozen assets “will remain immobilized until Russia pays for the damage it has caused to Ukraine.” But they recognized “the need for the establishment of an international mechanism for reparation of damages…
With the bulk of the sum, over $217 billion, frozen in the European Union, the bloc’s top official, Ursula von der Leyen, promised last month during a conference devoted to Ukraine’s reconstruction to present “by the summer break” a legal way to use those Russian assets for Ukraine’s benefit.
But her declaration caused uneasiness among bloc officials and diplomats who have been involved in months of discussions over the idea and found it increasingly complicated.
Experts said that seizing Russian state assets outright carried significant legal and financial risks.
Under international law, the assets could be seized through a vote in the United Nations Security Council, a ruling of the International Court of Justice or a postwar deal.
None of those options seem very likely.
Russia, a Security Council member, would veto any vote there.No deal can be achieved while the war is still going on.
And no case has been brought before the court, and if it were, international law argues against confiscating the Russian Central Bank’s assets, an act that would be a breach of its sovereignty, legal experts said.
In the United States, Treasury Secretary Janet Yellen told Congress last month that confiscating Russian assets frozen in the United States would probably require a change to American law.
European officials assessed in a confidential report, seen by The New York Times, that there was “no credible legal avenue allowing for the confiscation of frozen or immobilized assets on the sole basis of these assets being under E.U.restrictive measures.”
Most of the frozen assets are held by Euroclear, a large Brussels-based financial services company that is a critical part of the plumbing of financial markets and deals with international transactions and safekeeping of assets for central banks and global commercial banks.
Under normal circumstances, the company would decide what to do with that money.But given the uncertainties generated by the war, the company’s board said it had decided to set those profits aside.
Euroclear said it was concerned with minimizing “potential legal, technical and operational risks” that could come from the Commission’s proposals.
Euroclear officials worry about damaging the euro’s reputation and sending a signal to foreign investors that their money is not safe in Europe.
Without international coordination, investors could turn to other regions and currencies, such as the United States dollar or Chinese renminbi, to place their money.
An internal report drafted last month by European officials, and seen by The Times, listed the European Central Bank’s concerns.“The implications could be substantial,” the report said.“It may lead to a diversification of reserves away from euro-denominated assets, increase of financing costs for European sovereigns and lead to trade diversification.”
Belt and Road is China’s version of globalization.Belt and Road came at the end of a distinct period in modern economic history – the age of hyper-globalisation, writes
Wolfgang Münchau, a former co-editor of Financial Times Deutschland and director of Eurointelligence.
This period started with the cessation of the Cold War and ended with the pandemic.Its first decade was mostly about trade liberalisation: the World Trade Organisation became the new global trade authority.
Countless trade deals followed.The 1990s were also the decade of the internet and of financial deregulation.In Europe, it saw the introduction of the single market, and set the stage for the enlargement of the EU in the subsequent decade.
But the most consequential change of all was the integration of China into the global economy.China supplied the world economy with cheap labour.Germany, China and other Asian countries were the workshops of that system.They ran large and persistent trade surpluses against the rest of the world.The US and the UK were the system’s bankers.
Global imbalances were not a bug of the economic system, but a feature.
Globalisation was not primarily about the trade in goods.The share of goods trade increased rapidly in the 1990s and early 2000s, peaked around the time of the global financial crisis in 2008, and has stagnated since.What distinguished the period from 1989 onwards was the globalisation of other factors: capital and labour.Freedom of movement in the enlarged EU brought to western Europe the “Polish plumber” and the “Lithuanian waiter”.Trade is not what our modern era of globalisation is about.It is about people.
Globalisation was a win-win game for the world economy at an aggregate level.What the supporters of globalisation did not see, or did not want to see, were the rising numbers of losers: in the Rust Belt of the US, in northern England, northern Italy, northern France and eastern Germany.
Donald Trump’s America First campaign in 2016 was a reaction against globalisation.So was Brexit.
Each country has become unhappy in its own distinct way.
But what they have in common is a fall in political support for the old system.
In the EU, which often follows global trends with a delay, the worst is still to come.
The US and the EU have imposed economic sanctions on Russia, so far with only modest success.The US and some European countries have excluded Huawei, the Chinese mobile telephone company, from building 5G mobile communication systems.The most far-reaching restriction of all is the US ban on the sale of high-performance semiconductors to China.
The US did this ostensibly to stop China developing high-precision missiles, but it was also to protect America’s own technological leadership in this sector.
The global political and economic consequences of this enormous policy reversal have not been fully understood.One of them is a new global division, with Russia and China once again on the other side of an Iron Curtain.
It’s not just Russia and China.
The five countries known as the Brics – Brazil, Russia, India, China and South Africa – used to be seen as the emerging tiger economies of the 21st century.They were supposed to be on the side of the American-led West.But not one of them is complying with those expectations any more.One side effect of Western sanctions over Ukraine has been that China’s trade with Russia hit an all-time record last year.
The five Brics countries have set themselves the goal of becoming less dependent on the US, but they have not quite figured out how to achieve this.China and Russia have both worked on creating payment systems to make each other less reliant on the US and Europe for transactions.
The world of crypto-currencies and blockchains has opened up still unexplored opportunities to bypass Western financial monopolies.The Brics have been discussing a joint reserve currency.That would be a big deal…
China would have to undertake a huge economic policy shift away from investment towards domestic consumption.That won’t be easy.It would mean depriving powerful provincial party chiefs from funds and diverting those funds to consumers.
The upshot of such a policy shift, though, would be a reduced vulnerability to US sanctions.
The Brics are also working on strengthening the New Development Bank (NDB), which provides finance to its five founding states.Four other countries have since joined the NDB: Bangladesh, Egypt, the UAE and Uruguay.It could take a decade or two before the Brics develop a coherent economic union, a counterweight to the West.Until then, the US will continue to enjoy the exorbitant privilege that arises from the dollar’s global role.
But I wouldn’t bet on this still being the case in 2040.
There are also signs of a revolt against the Biden administration’s China strategy from Europe: the pushback against the pushback.
Olaf Scholz, the German chancellor, presents China both as a strategic competitor in some areas, such as car production, and a partner in others, such as climate protection.On 13 July, the German government announced its China strategy, which emphasised both competition and cooperation.The economic interdependence between the countries on the Eurasian continent is still strong.Should there ever be a military conflict between the US and China over Taiwan, I struggle to see Germany siding with the US.Germany wants to trade with both.
There are good reasons for the age of hyper-globalisation coming to an end.But we should be under no illusion about the economic costs of de-risking, such as chronic labour shortages and inflation.
Hyper-globalisation pushed prices down.De-risking pushes them back up again.Climate change imposes huge costs on governments and the private sector.It is unclear whether voters are willing to pay the price for this.
The period of globalisation was an era of plenty – for some.During that time, central banks and governments were able to support their economies almost without limits.
De-risking brings back old policy constraints, Wolfgang Münchau concludes.
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