French and Italian Businesses Seek Solution to Diplomatic Dispute

(Bloomberg) -- With the French and Italian governments struggling to overcome their political differences, businesses from the two countries are taking matters into their own hands and working to improve economic ties.

Some 60 French and Italian executives will meet for a two-day forum in Versailles starting Thursday, where they will grapple with topics ranging from European reforms to corporate financing needs and labor and training policies.

“The forum will be a unique opportunity to bring together economic leaders from the two countries at the highest level,” France’s business lobby Medef said. “Nothing will be taboo in direct conversations.’’

The mainly closed-door meetings will take place amid simmering tensions between the country’s governments that bubbled over earlier in February when France temporarily withdrew its ambassador to Rome.

Paris said that Italian Deputy Prime Minister Luigi Di Maio had meddled in French internal affairs by visiting with Yellow Vest protests who are critical of government policies and have called for President Emmanuel Macron to resign.

Deeply Intertwined

Businesses have a lot at stake in a Franco-Italian spat as the euro area’s second- and third- largest economies are deeply intertwined. Italy is France’s third-largest trading partner and France is Italy’s second, and there are cross-border companies in multiple sectors including eyewear manufacturer EssilorLuxottica. France’s banks also have large exposure to Italy with BNP Paribas SA and Credit Agricole SA both owning Italian retail units.

French and Italian Businesses Seek Solution to Diplomatic Dispute

French Finance Minister Bruno Le Maire and his Italian counterpart Giovanni Tria will attend the second day of the event in Versailles, something that wasn’t a given only a few days ago, said Bernard Spitz, president of the Europe and International commission of Medef.

“Between French and Italians we have a custom of saying we are the same family so there are sometimes family quarrels. But economically we are very close with the same concerns so we want to say ‘be careful’,” Spitz said.

Paris is worried that Italy’s slide into recession at the end of last year could drag down the French economy just as the government hopes for a growth revival as the disruption from the Yellow Vests protests begins to fade.

Le Maire said last week in an interview with Bloomberg that the Italian recession shouldn’t be underestimated and could have a “significant impact” on the broader European economy.

“It’s not wrong,” Tria said in response to Le Maire’s remarks. “Our future will depend in part on what we will do and in part on what will happen in Europe because we are entwined economies.”

Both countries are suffering from economic imbalances, the European Commission said in a report Wednesday. The executive arm of the European Union flagged France’s high debt, weak competitiveness and low productivity growth. Italy’s imbalances are “excessive’’ and also include a weak economic outlook and a deteriorating public finances, according to the report.

One item on the agenda is the merger of the two nations’ shipbuilding companies. Italy is frustrated by a challenge from French and German regulators to a proposed takeover by Italy’s Fincantieri SpA of France’s Chantiers de l’Atlantique. The European Commission is now reviewing the plan as a potential antitrust violation.

Another thorny issue is the planned $10 billion rail link between France and Italy. The government in Rome is divided and the infrastructure ministry says the project is highly unprofitable. That is frustrating the French government, which fears the project could lose European financing if Italy delays further.

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