Investors unnerved by Hollande's steel rescue

François Hollande's bid to rescue steel furnaces in France's historic industrial heartland was to be the mark of a president on the side of the workers and a state with the courage to bring a multinational to heel.

But the two-month stand-off over the steel giant ArcelorMittal's Florange plant in Lorraine has unnerved investors in the euro zone's second largest economy, confused France's unions and exposed his six-month-old government to international ridicule.

His Socialist allies have hailed as a victory a Friday compromise under which ArcelorMittal agreed to invest €180 million (Dh858.6m) to expand the site near the German border over five years and hold off making forced redundancies.

But as the European steel sector struggles to cope with overcapacity, the furnaces themselves will remain closed for now, and questions remain over the exact fate of the some 630 workers employed there and further funding needed for expansion.

With unemployment at 14-year highs of 10 per cent and his popularity ratings at record lows for a president only half a year into his mandate, there was clear political advantage for Mr Hollande to lock horns with the Indian steel magnate Lakshmi Mittal.

But the result is at best a no-score-draw, and the tactics used - anti-business rhetoric and the threat of nationalisation - could damage his wider reform effort.

While his pugnacious, micro-managing predecessor Nicolas Sarkozy led from the front, Mr Hollande let his ministers lead the fight, creating confusion over who runs industrial policy.

Arnaud Montebourg, the firebrand leftist industry minister who pushed the nationalisation option hardest, declared Mittal a persona non grata in France and revealed he had found an anonymous potential buyer ready to invest in the plant.

That was lapped up by international critics including the London mayor Boris Johnson, who told executives in New Delhi that the "sans culottes" revolutionaries had taken control in Paris and advised them to bring their investment rupees to Britain.

Mr Montebourg later retracted his personal attack on Mr Mittal but then had to watch as aides of the prime minister Jean-Marc Ayrault, who announced the final accord, briefed media that his putative investor was neither "credible or solid".

Facing opposition calls to resign, Mr Montebourg went on local television on Saturday to announce he had Mr Hollande's support and insist he felt "not betrayed, merely let down" by the outcome.

But worse than the damage done to the credibility of one of Hollande's most high-profile ministers, many fear the cacophony further shakes France's image as a place to do business just when it needs all the help it can get to avert recession.

"It has been a disaster," a senior French banker said last week as the episode unfolded. "Even for sophisticated investors who understand that in France there is a difference between the rhetoric and the reality, this is hugely unnerving."

Elie Cohen, economist at the CNRS public research institute, told the commercial iTele television network that by raising the option of nationalisation, Mr Montebourg risked encouraging copycat demands by workers at other struggling sites.

It is still too early to say whether the Florange wrangling will hurt foreign investment in France, which Bank of France data show has grown modestly since the global turndown to hit €30 billion or 1.5 per cent of output last year.

Barely noticed last week, the American online giant Amazon said it was opening a new distribution centre in northern France that will create up to 2,500 jobs - four times the number at the Florange furnaces and a reminder that 80 per cent of France's economy is now in the services sector.

Vital to France's long-term prospects is whether Mr Hollande obtains in coming weeks the overhaul of the country's unwieldy and expensive labour regulations which he has tasked employers and unions to achieve in negotiations by year-end.