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Analyse 06/06/06 - Political and Industrial Implications of the Clearstream Scandal

While the French media continue to follow closely the developments of the Clearstream scandal, the latter's implications on France's political and industrial landscape remain largely unknown even to the most informed public. This is due both to the caution used by the specialised press in dealing with the issue and to the scandal's complexity.

Since France is a key player in the European Union and in the Euro-Atlantic relations, any significant change in its domestic power configuration – both political and economic – will have an impact on international politics and global business. The consequences of the Clearstream's scandal are, thence, the real issue – much more of the dramatised story that excites the press. However, in order to understand what is going to happen, the background of the affair needs to be briefly exposed.

The Background

Clearstream, based in Luxemburg, is the clearing division of Deutsche Börse Group. Its tasks are thus related to electronic transitions, whereby reporting, risk margining, netting, tax as well as failure handling are the core of its activities.

The current Clearstream scandal is also known as "the second Clearstream affair", and is not to be confused with a previous one (dating back to 2001) linked to alleged money laundering and tax evasion. The current affair was originated in 2003 and involved the question of France's selling of six frigates to Taiwan, following a 1991 deal.

According to the accusations, such Franco-Taiwanese deal allowed certain political decision-makers to illegally receive percentage fees – thanks to secret Clearstream's accounts allegedly discovered by a hacker with ties to France's intelligence services. Such accounts were in fact mentioned in a list that magistrates believe to be a fake. The scandal rapidly progressed and involved politicians (among which Interior Minister Nicolas Sarkozy) and top managers linked to the E.U. key defence and aerospatial giant, E.A.D.S.

The timing of the scandal's outburst is essential to understand its actual and potential implications. The media campaign of 2006 looks particularly dangerous for France's present Prime minister, Dominique de Villepin and the Chirac-Villepin faction in the Gaullist party, U.M.P., with "collateral damages" for E.A.D.S. Back in 2003, however, it was E.A.D.S. the primary target.

The key players of the manipulation have been Jean-Louis Gergorin, vicepresident of E.A.D.S., and Imad Lahoud, an intelligence agent and computer expert.

A widespread belief was that the accounts were revealed in order to prevent Noel Forgeard to obtain the co-presidency d'E.A.D.S. to the profit of his competitor, Philippe Camus, supported by Jean-Louis Gergorin back in 2003. However, such claims are flawed by an evident contradiction: not only Noel Forgeard becomes co-President of E.A.D.S., but he chooses Jean-Louis Gergorin as vicepresident, while Imad Lahoud becomes Scientific Director.

As Forgeard knew Gergorin and Lahoud perfectly, it is unthinkable that he could have chosen them for vital corporate roles if he suspected that they consistently tried to damage his career.

Therefore, it is likely that Gergorin and Lahoud didn't fabricated the false list of accounts. A credible hypothesis is that the Clearstream's electronic network had been hacked by Lahoud, who probably fell prey to a so-called "honeypot". A honeypot is a kind of anti-hacker trap, designed to deflect and counteract attempts at unauthorized use of information systems, since it seems to contain information would be of value to pirates.

The obtained fake list would have then been transmitted by Lahoud to a French top intelligence officer, General Rondot, asked by Villepin himself to verify the list's authenticity. The problem is that many conjectures are being made regarding the real aims of the entire manipulation. What is important, however, is the present use of the available information and the political management of the scandal's perception.

In other words, the Clearstream affair remains important beyond its real and initial rationale, because it may significantly weaken certain French decision-makers in the run up to the 2007 presidential elections.

Domestic Political Implications

As of June 2006, the main implication of the Clearstream affair has been the further weakening of an already troubled French government, and particularly of Dominique de Villepin. The latter appeared in late 2005 as a candidate for 2007 with good chances to succeed. He did so after his first months at Matignon were marked by a decrease of unemployment rates and the launch of an ambitious energy policy.

However, Villepin had to face a strong competitor inside the U.M.P., that of Nicolas Sarkozy. Therefore, when Villepin stumbled over the massive protests against his sponsored C.P.E. (a proposed contract for young employees that significantly loosened hire and fire rules), Sarkozy immediately moved to benefit from the situation by taking the initiative and launching negotiations with students and trade unions.

Sarkozy already tried to take the actual political leadership in November 2005, as France's social life was destabilised by riots. Now, after Villepin was caught in the Clearstream affair, it looks like the Prime minister will have little choice of being elected in 2007, even though Chirac will likely continue to support him and to fight back in the information warfare that followed the scandal.

As a consequence, the rising star of Socialist Party, Ms Ségolène Royal, is taking advantage out of the U.M.P.'s inner battle, and she looks increasingly fit to win the presidential election's first round next year – which would put her in competition with the second most successful candidate in the final play-off.

Because of the Sarkozy-Villepin frictions, Sarkozy may lose some of his supporters, should he appear to a large part of French citizens as someone who unduly exploits his allies' troubles. Therefore, the Interior minister will have to move carefully in the coming months, balancing his competitive strategy against Villepin with a successful hegemonic tactique within the French right-wing.

Failing to do so will put Sarkozy's chances at risk, and will once again launch the far right National Front's leader, Jean-Marie Le Pen, as the surprise challenger to the whole establishment.

Since France experiences a difficult political phase, culminated with the 2005 establishment's failure to win the referendum on the E.U. Constitutional Treaty, all the 2007 candidates will try to capitalize on the citizenship's malaise with the "same old politics". The new wave of anti-E.U. feelings and rhetoric has given strength to the sovereignist discourse in the last couple of years.

However, the genuinely sovereignist right-wing party, Villiers' Movement for France, isn't as rooted as the National Front among French voters and, more importantly, does not epitomize the anti-systemic feeling like Le Pen does. Thus, Villiers' plans to seduce a large part of the National Front's sympathisers and supporters look difficult to succeed, notwithstanding Le Pen's isolation from France's media system, since the National Front still capitalizes past years' political rooting. This largely explains why in some of the newest polls, Le Pen was chosen by 10 to 14% of voters as their 2007 candidate. That figure may be little impressive, but the National Front's leader was credited with even less votes one year before his surprising success of 2002.

While Sarkozy will obviously use the next six-eight months to secure his maximum potential among his supporters and those of the broader French right-wing landscape, Le Pen will be a serious challenge to the Interior Minister's strategy of winning all of the most conservative votes -- even though in past occasions, the candidate who took the lead in the polls conducted one year before the election never succeeded to actually win.

International and Industrial Implications

As explained, the Clearstream affair went off in 2003 and then, its main victim appeared to be E.A.D.S. Back in 2003, the Euro-American feud over the Iraqi war was in its most critical phase, as Chirac and Schroeder tried to lead Europe in a strategic alignment with Russia against the U.S. unilateral views. Because the French government maintains a golden share of 15% in E.A.D.S., and is deeply involved in its corporate governance, a blow to E.A.D.S. credibility could have been a serious threat for the Franco-German political-strategic combine.

To destabilise and weaken the E.A.D.S.'s governance would in fact mean to damage the most important Franco-German defence and aerospatial industry, with serious consequences for Airbus (80% owned by E.A.D.S. ) as well.

E.A.D.S.'s main competitors globally are U.S. giants such as Boeing and Lockheed Martin; however, E.A.D.S. also tried to seek inroads in the U.S. market. The E.U. corporation is at the same time a strong business rival for the U.S. majors and the core of the European industrial military complex.

With the revival of the Clearstream affair, thus, E.A.D.S. security looks once again endangered, although the present scandal appears to be used maily by French political forces to gain a decisive advantage before the presidential elections - notwithstanding the experience shows that such political manoeuvres around the issue may backfire. If Gergorin's position will worsen in the follow-up of the investigation, the E.U. giant's governance will be seriously struck, at a time of even increased global competition in space, satellite, defence and commercial jet industries.

In addition, the scandal may change the balance of power inside E.A.D.S., since the German side in the group looks irritated by the political machinations and could demand the French state to reduce its involvement in E.A.D.S.

Such a possibility would highlight France's lack of a clear industrial strategy, whereby market-oriented policies appear often at odds with the need of protecting vital defense and energy-related assets. It would also jeopardise Paris' ambitions to politically lead the evolution of the European security and defense policy.

Whereas such a development is only a possible, and not a certain one, further calls for implementing an effective public policy in the field of economic intelligence (i.e., economic patriotism) are to be expected in France, as the country approaches key presidential elections.

Conclusions

The Clearstream scandal is showing how strategic industrial and political affairs are tightly linked in today's power and interest struggles. Although the whole issue originated in a specific context, and for some still partially obscure reasons, its echoes are being used by different actors in order to pursue their individual interests.

France – which is by far the most ambitious Western European country when it comes to projecting its power and influence globally – appears still vulnerable precisely in those strategic sectors that Paris is trying to protect. The reason is that France's economic security and intelligence dispositions, even if largely theorised and discussed, look still flawed and exposed to dangerous attacks.

Copyright © Federico Bordonaro & Jean-Philippe Miginiac
Tous droits réservés

Cet article a également été publié le 05 Juin 2006 dans The Power and Interest News Report (PINR)

EADS gets Caught in Its own Tangled web
By Paul Betts, FT 25/05/06

"The problems of EADS, Europe's leading aeronautical group, are an
object-lesson in the dangers facing a company when a government lacks a coherent industrial vision.

EADS, a European multinational but with 15 per cent held by the French government, is caught between classic French interventionism and the demands of the market, and between the competing interests of different government departments. It also has to negotiate an intricate relationship with its German and Spanish core shareholders..."

"...Since its conception, the EADS management structure has respected the political arrangements for control of the group whereby French and German executives, like the Hapsburg twin-headed eagle, share responsibility at the top.

This unwieldy structure has managed to work, albeit with difficulties, because national rivalries have been kept in check, and because the company appeared to have the right products while the aerospace market was buoyant.

But it has failed to react fast enough to develop the new generation of
commercial aircraft that airline customers are now demanding, and as a result risks losing out to Boeing.

It has also been unsettled by another aspect of the French government's failure to push Thales, the French defence electronics company in which the state holds the single biggest stake, into a merger deal with EADS to give more muscle to the Franco-German group.

These shenanigans - coupled with the appearance of EADS senior French personnel at the centre of the Clearstream scandal shaking the Paris political establishment - can only make the Americans smile. It provides arguments for those in Washington who are hostile both to EADS and Airbus because of the subsidies row. Nor can it help EADS overcome the hostility of American politicians seeking to protect the US defence market from foreign penetration in areas of sensitive technology.

The French government must sort out its industrial policy and finally shed its stake in EADS, as the Germans have long been asking. The group must resolve how Lagardèreand DaimlerChrysler, its two core industrial shareholders, are going to offload large chunks of their stakes next year.

Management must be rationalised by creating a single chain of command under one chairman and one chief executivewhile respecting thegroup's Franco-German balance. And the group needs to address with greater transparency the different roles of civil aviation and defence.

It is a daunting list. But time is running short and the patience of the
Germans is wearing thin, over what one prominent German official calls the indulgence of the French in "too many kindergarten games"."