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Paul Marshall, the hedge fund boss readying a bid for The Telegraph

Co-owner of GB News is looking to build a right-leaning media empire and has turned to US billionaire Ken Griffin for backing

Over a July lunch at Marshall Wace’s London headquarters, the hedge fund manager’s co-founder Sir Paul Marshall invited US billionaire Ken Griffin to join a consortium of investors preparing a bid for the Telegraph Group. 

The proposal to buy the UK newspaper publisher struck a chord with Griffin, founder of US hedge fund Citadel and a staunch advocate of free expression who in 2020 paid $43.2mn for a rare first printing of the US Constitution.

“It’s important to me to maintain the ethos of freedom of speech in the US and the UK as a model for the rest of the world,” Griffin told the Financial Times. “Paul’s passionate about this and I’m happy to support him.”

The pair are among the favourites to acquire the Telegraph newspapers and Spectator magazine when they are put up for sale by Lloyds Banking Group in the next few weeks, in a deal that could fetch more than £500mn on the upper level of newspaper valuations. 

Marshall, who holds a 45 per cent stake in upstart broadcaster GB News and owns digital media group UnHerd, is the latest in a long line of wealthy individuals to turn media baron.

Ownership of the Telegraph, the largest nationally important UK newspaper to be sold in almost a decade, would propel the Brexit-supporting self-styled classical liberal into the public spotlight. The plan marks the latest iteration of the financier’s efforts over the past four decades to influence and shape the national conversation through involvement in politics, education, philanthropy and media.

Born in London in 1959 and educated at an English boarding school after his parents moved overseas, Marshall is not the first in his family to pursue media interests.

While his father worked for Unilever, his mother Mary was a freelance journalist — family lore has it that she was the first woman to use a four-letter word on the BBC, discussing a book she had written on the origin of swear words. His sister Penny Marshall is a correspondent at ITV News.

Studying for a history and modern languages degree at Oxford university, Marshall was taken by the liberalism of William Gladstone and Winston Churchill, particularly the early 20th-century reforms that laid the foundations for the modern welfare state. 

After graduating, Marshall stood for parliament in Fulham in 1987 on an SDP-Liberal Alliance ticket. It was only when he failed that he turned to finance, working for SG Warburg & Co’ s fund management arm Mercury Asset Management.

He and Ian Wace, who had been SG Warburg’s youngest ever director, set up their eponymous firm in 1997 when the European hedge fund industry was in its infancy. Launching with $50mn in assets, half from financier George Soros and the rest from friends and family, the firm has grown to a peak of $64bn having carved out a position as Europe’s answer to US giants Citadel and Millennium Management.

“The best thing we ever did was recognise that Paul’s interest was in markets and my interest was in business-building, and that we allowed each other to develop in those spaces,” Wace told the FT earlier this year. 

The sale of a 24.9 per cent stake in Marshall Wace to KKR in 2015, which the US alternatives giant has since increased to 39.9 per cent, has helped turbocharge growth. Assets are split across its quantitative business, which accounts for two-thirds of assets and grew out of its Tops proprietary trading system that analyses broker recommendations, and Marshall’s Eureka fund that makes up the remaining one-third. 

The Eureka fund has delivered average annualised gains of 11.8 per cent since its 1997 launch, while the Tops Market Neutral fund has recorded an average annualised gain of 9.2 per cent since its November 2007 inception.

But performance this year has been more pedestrian. The Eureka fund was up 3.3 per cent in the first nine months of this year, while the Tops Market Neutral fund was up 4.4 per cent.

Marshall donated about £200,000 to the Liberal Democrats between 2002 and 2015, when he quit the party in part over its support of continuing EU membership. Unlike Wace, who avoids the spotlight, Marshall backed Brexit in the 2016 referendum and they each gave £100,000 to the opposing campaigns. He stands by his support for Brexit, although believes it has been poorly executed.

Some rival Telegraph suitors have raised questions over whether Marshall is as focused on making money for his investors as he is on building a media empire. But people familiar with his thinking say he wants to realise both a financial return and a societal benefit.

Behind the scenes, his camp is at pains to reassure the hedge fund’s investors that he is fronting the bid in a personal capacity.

People close to Marshall point out that the bid will be made through UnHerd Ventures media group, whose leadership team includes editor-in-chief Freddie Sayers. Lord Theodore Agnew, a former government minister who has worked with Marshall since both served as non-executives at the Department for Education more than a decade ago, recently joined as chair.

If successful with the bid, Marshall has signalled that he will not seek a seat on the Telegraph Group’s board or be involved in its editorial agenda, according to the people, who said his day-to-day focus will remain Marshall Wace. He stepped back from the hedge fund from 2005 to 2008 to focus on politics and philanthropy before returning to it full time.

With a deep Christian faith, Marshall’s belief in equality of opportunity not of outcomes has driven his philanthropic efforts to reform British education. In 2006 he and Wace set up Ark, a charity that aims to transform children’s lives through education that has grown from working with just one school into a network of 39 across the UK. A decade later, Marshall was knighted for services for services to education and philanthropy.

Agnew told the FT he shared the hedge fund entrepreneur’s desire to champion different viewpoints in the media and concerns over the impact of a degradation in the media on society.

People familiar with Marshall’s thinking say UnHerd, his first media foray soon after his estrangement from the Lib Dems, was a response to his frustration with the mainstream media, which he believes has become tribalised with little room for heterodox views.

Marshall has experienced the collateral damage wrought by “cancel culture”. His son Winston quit folk rock band Mumford & Sons following controversy and an online backlash around his support for Unmasked, a book decrying the leftist antifa protest movement.

Meanwhile, Marshall’s involvement with GB News, where he started as a small investor and has no editorial control, stemmed from his perception that a leftwing bias among the dominant UK broadcasters — the BBC, ITV, Channel 4 and Sky — leaves a business opportunity for a right-leaning rival. 

GB News, which has raised £120mn, is yet to make a profit and reported a £30.6mn loss last year, will require fresh funding at some point, according to chief executive Angelos Frangopoulos. 

A scandal last month at the broadcaster, which counts prominent Brexiters including Conservative party deputy chair Lee Anderson and former business secretary Sir Jacob Rees-Mogg among its hosts, prompted the sort of headlines that Marshall will want to avoid as he prepares a Telegraph bid. GB News has suspended Dan Wootton, one of its most popular hosts, after airing sexist comments by actor Laurence Fox about a female political journalist. 

Rival bidders predict Marshall will now have to work even harder to convince Lloyds that he is the right owner for the newspaper. But Ian Whittaker, an independent media analyst, does not believe the bid will be derailed by the furore.

“You work in finance and set up a hedge fund, you are not a shrinking violet,” Whittaker said. “His backers would have been aware of his links and there is an argument for saying GB News if anything has been decisive in sacking Fox and suspending others.”

Marshall’s interest in the Telegraph lies in a view that the newspaper is “a British heritage brand that has not yet realised its full potential, particularly in an international context”, according to one person close to Marshall’s thinking. 

Digitalisation gives it the opportunity to reach the whole of the Anglosphere, something publications including the FT, Economist, Guardian and Mail have all taken advantage of. From a standing start, roughly a third of UnHerd’s audience is based in North America.

One person close to the sale of the Telegraph said the Marshall camp “think that there is a Fox News-style void that the Telegraph can fill here, and that can be taken back to the US as a newspaper brand”.

Marshall is seen by analysts as one of the most credible owners of the Telegraph, alongside other bidders such as Lord Rothermere’s DMGT. Claire Enders, a media analyst, said this was in part because Marshall would be one of a “handful of media owners acceptable to the Conservative government”.

Any successful bidder will need to pass competition tests, which will not be an issue for Marshall, and a public interest assessment that could lead to objections in Whitehall.

Griffin would give his bid “real US conservative firepower”, Enders said, adding: “Paul Marshall wants to influence wider culture.”

He netted the Grand Prize as well as Le19M Métiers d'Arts and the city’s public prizes.

HYÈRES, France — Belgian designer Igor Dieryck won the top prize at the 38th edition of the International Festival of Fashion, Photography and Accessories — Hyères on Sunday, wowing the jury headed by Charles de Vilmorin with chiseled designs inspired by hotel staff uniforms.

Based in Paris, the 2022 graduate of Antwerp Royal Academy of Fine Arts hailing from the south of Belgium is working as a junior designer in menswear at Hermès.

Titled “Yessir,” his unisex collection was inspired by his student job as a receptionist in a hotel, exploring the interactions between people from all walks of life and questioning “the place of hotel staff within their establishment.”

“The uniform is really this idea of adding a layer onto your essence and it modifies the perception people have but not really ‘you,’” he said during the finalists’ showroom.

His work was “a total crush” for the jury, said de Vilmorin lauding “a collection [that was] hyper creative, poetic but also super real and desirable that could stretch into multiple seasons in the future.”

Among the standouts were the opening look, a groom clad in a cropped jacket and trousers with a high waistline that gave legs for days and a jaunty pillbox hat; trousers with a trompe-l’oeil mashing extreme baggy jeans, tailored slacks and boxer shorts, and a jeans jacket that was a millefeuille of materials both casual and delicate.

Thanks to a down jacket with a hood inspired by a feather duster, crafted in collaboration with Lemarié, Dieryck also scooped up the Le19M Métiers d’Arts Prize in partnership with Chanel, which comes with a 20,000-euro purse for a project to be exhibited at next year’s festival.

The L’Atelier des Matières Prize and its 10,000 euros worth of materials went to Sweden’s Petra Fagerstrom, for her work inspired by her grandmother, who was a parachutist in the former Soviet Union.

She impressed by developing a technique to create lenticular images in fabric using pleating, used to express the duality between the reality of, say, a floral nightgown and one’s dreams. In her grandmother’s case, it had been a mental image of California as a “utopian eternal sunset” taken from a postcard, juxtaposed with her life under a totalitarian regime.

Cut from materials that included an upcycled parachute and deadstock leathers, the “Grand-mère Volante” collection also netted Fagerstrom the Mercedes-Benz Sustainability Prize, which distinguishes the designer who best applied eco-conception practices in their work.

Fagerstrom, who intends to launch her brand and is in the Swedish Fashion Council’s five-year incubator program, is also keen to find partners in textile innovation and sustainability to further her research in those fields.

The edition had been particularly diverse in inspiration, with designers digging deep into themselves to talk about how they felt in their bodies, processing grief or the global geopolitical context. “They were boundlessly generous, inspired by joyful moments or difficult episodes,” de Vilmorin said.

Given his age, the 26-year-old fashion jury president saw the competition “more as an exchange than a judgment on their work,” saying he’d been particularly drawn by those whose work allowed him to project how they’d evolve in “two, three, 10 years.”

The accessories grand prize went to Swiss designer Gabrielle Huguenot, for designs she described as “impetuous and vengeful” that ranged from unwearable shoes that had spikes inside and outside, to spiny jewelry and bags that looked halfway between practical and potentially lethal.

“Apart from the work, there’s a world around her. You could see that she knows already who she is and is confident in that,” accessories jury president Alan Crocetti said. While her work was intricate and close to art pieces, the jury could see it translating into a commercially viable reality. She embodied the advice of “keep doing whatever crazy things are in your head but understand that people should be able to have it as accessories — it’s a balance,” that he’d give for anyone looking to establish a brand.

German designer Christiane Schwambach received a special mention from the accessories jury.

Victor Salinier, a graduate of Geneva’s HEAD fashion school, rose to the challenge of using only leather for an accessory of their choice for this year’s Hermès prize submission, a constraint that encouraged designers to step outside of their creative universes, said the French luxury house’s creative director of fashion accessories Clémande Burgevin Blachman.

She lauded Salinier’s use of leatherworking crafts but also the “great poetry” of his headdress that evoked a child perched on their parent’s shoulders.

Blachman noted that candidates leaned toward innovation and experimentation, had often rooted their submissions in childhood memories and considered notions of beauty and ornamentation.

As is now tradition, finalists will be exhibiting their work in Paris on Wednesday and Thursday as part of the annual Supima Design Lab, alongside the works of the 2023 Supima Design Competition finalists and a selection of designers including including Niccolò Pasqualetti, Victor Weinsanto and Vincent Pressiat.

In photography, Paris- and Lausanne, Switzerland-based Thaddé Comar scored the the 7L Photography Grand Prize with his work documenting the 2019 protests in Hong Kong, exploring in particular the devices used by demonstrators attempting to mitigate increasingly sophisticated methods of control.

The American Vintage prize went to self-taught Senegalese artist Souleymane Bachir Diaw, who is based in Paris, for “Sutura, the silent voice of men,” questioning masculinity through a wardrobe in motion. Kin Coedel, who lives and works between Paris and Shanghai, won the public photography prize.

In addition to the runway shows and the fashion, photography and accessories competition, there were also plenty of workshops, book signings and musical performances to keep visitors entertained throughout the weekend in Hyères.

Among the exhibitions remaining open to the public until Jan. 14 were “Esprits Libres,” with a recreation of designer Stéphane Ashpool’s studio as he creates looks for the French national team ahead of the Paris Olympics in 2024, and “Les Nuits d’Été,” (or “summer nights”), where designer Pierre Yovanovitch reimagined the summer residence of the Noailles couple.

Delving into the house’s archives, he matched his finds with new commissions to recreate a surreal bedroom, boudoir or music room — the ideal setting for “Garde-Robe(s),” curated by Emilie Hammen with pieces ranging from a recreated Chanel haute couture dress from fall 1930 to a bespoke Ester Manas design.

Throughout the Villa were also dozens of portraits of Marie-Laure and Charles de Noailles by contemporary artists.

Creating using the tools and languages of the times was at the heart of the roundtables organized by the Fédération de la Haute Couture et de la Mode, which looked at artificial intelligence for this edition.

“You have to appropriate AI and not the other way around,” was the lesson the FHCM’s executive president Pascal Morand wanted the audience to remember.

Participants, including Launchmetrics chief executive officer Michael Jais; Laurence Devillers, professor of artificial intelligence at the Sorbonne university and member of the digital ethics committee; Eric Peters, deputy head of unit in charge of the European Commission’s Strategy for the Digital Decade 2030, and Meta’s global head of luxury Morin Oluwole, went over the latest innovations in this domain and new models; the ethical, social and legal challenges of generative AI, and the opportunities it brought for creation.

“The prompt is a tool just like looms or sewing machines,” said Denis Bonnay, an associate professor in philosophy at Paris Nanterre University, highlighting AI’s capacity to “find a form of coherence we wouldn’t have expected” from seemingly disparate elements.

Engineer, entrepreneur and artist Paul Mouginot said AI was “a tool, not a medium” and insisted on the importance of having a personal vocabulary to feed into AI models.”

Humans aren’t quite surplus to requirements yet, agreed Samuel N. Bernier, leader of design and innovation at digital transformation consulting firm Onepoint. “We have the idea that AI will continue progress without us but it needs us to feed it. If we give it its own production, it tends to go around in circles or even collapse.”

Speakers also often pointed out how embedded AI already is in our everyday life, be it Amazon shopping recommendation or fraud detection.

The prizes were a highlight of the weekend in Hyères, but the four-day event was also an opportunity for industry newcomers and insiders to meet and form lasting links.

Icicle president Vanessa Yao revealed that’s how the brand tapped 2021 winner Ifeanyi Okwuadi, who has since joined its Paris design studio.

Meeting the other finalists was an outcome Finnish finalist Leevi Ikäheimo was already pleased with ahead of the results. “Even though our aesthetics are totally different, we have the same values, passion and care for [the] future. If and when we go places, becoming people who have power decide, I want to believe we will use it to make this industry better – more sustainable, socially sustainable and more inclusive.”

Festival founder and general director Jean-Pierre Blanc said this edition highlighted “the generosity and the importance of youth,” which is the essence of the festival created in 1985.

While he wouldn’t be drawn into speculating on what kind of career awaited the contestants, he noted “many things [are] possible today in fashion weren’t 20 years ago,” such as the appointment of Botter’s Rushemy Botter and Lisi Herrebrugh to the creative helm of Nina Ricci in the wake of their Hyères win in 2018.

The fashion, photography and accessories festival has helped raise the profiles of talents such as Viktor & Rolf; Saint Laurent artistic director Anthony Vaccarello, and Paco Rabanne’s Julien Dossena.

Blanc was also left touched by this year’s young jury presidents “giving as much to the public but also the youth they will see over the weekend,” through exhibitions, masterclasses and jury sessions, saying it matched Charles and Marie-Laure de Noailles’ proclivity for very young artists for this edition during the Villa Noailles centenary.

“The Salvador Dali and Alberto Giacometti [they commissioned] weren’t ‘Dali’ and ‘Giacometti’ we remember today, they were talented 20-somethings,” he said.

Concerns about national security and the permanent displacement of Palestinians are top of mind for Cairo

CAIRO—Egypt is coming under intense pressure to allow refugees to cross the border and escape an Israeli bombing campaign and expected ground invasion.

But for Cairo, opening the border is a tough call.

Egypt plays a unique role with Hamas, mediating its conflicts with Israel while also helping squeeze the U.S.-designated terrorist group with a blockade on goods and travel out of the Gaza Strip. It has been reluctant to allow the tensions and troubles of Gaza to enter its own country in the form of large numbers of refugees.

Egyptian President Abdel Fattah Al Sisi has resisted calls for a quick opening of the border for foreigners trying to leave Gaza, using it as a bargaining chip to get humanitarian aid to Palestinians running out of food and water. He also made clear that a flood of Gazans escaping into Egypt was a nonstarter, a situation that might create a refugee crisis within his border that would pose security threats.

A flurry of recent diplomacy, which included a visit to Cairo on Sunday by U.S. Secretary of State Antony Blinken, puts Egypt at the center of efforts to temporarily halt an Israeli bombing campaign that has displaced a million people—retaliation for a brutal Oct. 7 attack launched by Hamas that killed 1,400 Israelis. But some Western officials say Egypt hasn’t been helpful and are going for help instead to Qatar, which also has ties to Hamas.

The Rafah border crossing, located on the southern end of the Gaza strip, is the only land crossing in Gaza that Israel doesn’t control, although the Israeli military carried out several airstrikes near the crossing last week, bringing a long line of humanitarian aid trucks from Egypt to a halt and forcing crowds to run for cover.

According to a preliminary plan, U.S. citizens would be the first to enter Egypt, followed by American dual nationals and other Western nationalities, then United Nations and other aid workers and finally, employees of international companies. But Egypt pulled back on Saturday, asking that the U.S. and Israel first promise a safe passage for humanitarian aid from Egypt into Gaza, according to Egyptian officials.

Egypt gave the U.S. a twofold explanation for backing off that plan: it couldn’t ensure that Hamas would allow people to leave, and the damage to the crossing would make it challenging to process the hundreds of potential evacuees, according to U.S. officials.

“Egypt has put in place a lot of material support for people in Gaza, and Rafah will be reopened,” Blinken told reporters in Cairo, after meeting with President Sisi. “We are putting into place—with the United Nations, with Egypt, with Israel, with others—the mechanism by which to get the assistance in and to get it to the people who need it.”

The pressure to host refugees comes as Egypt’s economy struggles with surging food prices, a depreciating currency and mounting criticism of President Sisi, who faces a presidential election in December. Gulf states, which had been resistant to providing cash to Egypt, have now floated the idea of giving Egypt financial aid in return for its acceptance of Palestinian refugees, according to officials.

Israel and Qatari delegations have been in Cairo in recent days to try to convince authorities to take in what could be hundreds of thousands of Palestinians fleeing the war. President Sisi has also spoken on the phone with a number of European leaders in recent days, including French President Emmanuel Macron, British and Dutch prime ministers and Charles Michel, one of the European Union’s top two officials, about allowing EU citizens in Gaza out.

European officials have been trying to enlist Egypt’s help to evacuate their citizens from the Gaza Strip and to allow humanitarian aid to flow into Gaza. Egyptian officials have said that for that, Israel needs to halt its attacks temporarily and to ensure the Rafah border crossing is safe to use. EU officials said that if Egypt does allow in some Palestinians, the bloc’s tripling of humanitarian aid for Palestinians, announced Friday, would go partly to Egypt, noting that additional assistance could be forthcoming.

While Egypt prepares to let some people in, it is fighting back fiercely at the idea of having to host what could become hundreds of thousands of Palestinian refugees, according to officials. Israel has a history of displacing Palestinians, and in 1948 tens of thousands of Palestinians flooded into the Egyptian border town of Rafah, turning it into a refugee camp. Tents then became shacks, which became simply constructed buildings to host what became an Egyptian-Palestinian population.

“Egypt has a right to be concerned about Palestinians not being able to return to Gaza,” said H.A. Hellyer, a Middle East regional security specialist at the Royal United Services Institute for Defence and Security Studies. “It’s extraordinary that Israel, the power responsible for Gaza, is saying Egypt should open up its corridors.”

In a meeting chaired by President Sisi before he met with Blinken, the Egyptian National Security Council said it “rejects and condemns the policy of forced displacement and any attempts to liquidate the Palestinian cause at the expense of neighboring countries.” It reiterated Egypt’s stance that there be a two-state solution, and after the meeting, Sisi called for an international summit to discuss the future of the Palestinian issue.

The other top concern by Egypt is its own national security. In particular, it worries that opening its border will raise the possibility of groups even more extreme than Hamas entering a peninsula that authorities have worked hard to bring under its thumb for about a decade.

After a suicide bomber killed at least 30 Egyptian soldiers at a security checkpoint in 2014, Egyptian authorities delineated an official buffer zone of 79 square kilometers next to the Gaza Strip. The Egyptian military took over, razing the city of Rafah and, in the following years, pushed out about 100,000 of mostly indigenous Bedouin tribesmen from the area, according to Sinai Foundation for Human Rights, a London-based rights group.

In preparation for an influx of people from Gaza, officials say Egypt has set up additional security cordons for the buffer zone. They have completely closed off Al Arish, a port city roughly one hour’s drive west of Rafah that has become a collection point for humanitarian supplies for Gaza.

Egyptian officials have also discussed capping the number of Palestinians that Egypt would allow to 100,000, so that authorities could manage them in confined areas. Preparations are being made to set up tents in Rafah and the city of Sheikh Zuwayed.

Some analysts warn that a community suffering from blockade by Israel since 2007 and now displacement could be vulnerable to recruitment by extremist groups, introducing unpredictability and complexities for Egypt if it is made to serve as a host. Sisi has stressed to European officials that militants have killed many Egyptian soldiers in recent years.

“If Palestinian factions were able to build up military capabilities in Gaza, then imagine what they could do if they have a much larger border area inside Sinai,” said Mohannad Sabry, a scholar at King’s College London’s Defense Studies Department and author of a book on Sinai.

“They could rebuild and go back to attack Israel again, and Israel would have to fight them on Sinai territory,” Sabry said.

Many in Gaza say they want to stay in their strip, and are worried that Israel’s expected invasion of Gaza is a plan to displace them permanently. The hundreds of people gathering at the border crossing on Saturday to try to leave were mostly foreign-passport holders, including an estimated 500 and 600 American citizens.

“There’s no sign of an exodus now,” said Sabry, adding that Egypt might not be immediately concerned with an influx of Palestinians as it hasn’t taken steps to physically seal the border completely.

In 2008, tens of thousands of Palestinians poured into Sinai after an explosion at the Rafah border. Prices of food soared, but most of the people returned home to Gaza after one week.

Some Egyptians worry that letting in Palestinians would equate lifting the pressure off Israel, and facilitating a more permanent displacement of their Arab brethren.

“If Gazans were allowed into Egypt, this would mean that there is no more a Palestinian cause and would mean that Egypt contributed to this happening,” said Shady Mohsen, a researcher at the Egyptian Center for Strategic Studies, an independent research institute in Cairo.

Veolia-Suez: The Dramatic Battle to Supply Water to the People of Ile-de-France

STORY - A public administration's IT blunder has stirred confusion in a significant tender process.

A lucrative contract worth 4.3 billion euros, bitter rivals of French capitalism, an unfortunate IT hiccup, and the public administration's embarrassment... The ongoing battle between Veolia and Suez concerning the production and distribution of drinking water for 4 million residents of Ile-de-France now resembles a convoluted plot.

Initiated two years ago, the tender process to secure this twelve-year contract was abruptly halted last spring by Sedif (Syndicat des eaux d’Île-de-France). The public institution discovered that elements of Suez's bid had mistakenly been disclosed to its rival via a document exchange platform that was supposed to be highly secure, as reported by Marianne. "Please download the documents," read a message dated April 4th to Veolia, the historic operator of this market for over a century, confusingly merging its documents with those of challenger Suez.

A few days after becoming aware of the mistake, Sedif commissioned a judicial expert to ascertain how Veolia had acted once the glitch occurred. According to a 50-page report released in June, as revealed by Les Échos, the expert concluded that "given the above information, the confidentiality of the Suez files downloaded by the Veolia user appears to be compromised." The expert questioned Veolia's response time (the company informed Sedif of the malfunction on April 10) and specifically pointed out "activities dating from April 5 associated with copy-paste and print functions." Veolia's own IT expert, working alongside Sedif's, disputed these findings, a source close to the case mentioned. Veolia's teams expressed frustration to some Paris stakeholders about being "burdened with proving their innocence."

On Friday, October 13, Sedif's board met behind closed doors under its president, André Santini - the mayor of Issy-les-Moulineaux, to attempt to resolve the issue and decide the future course of the procedure, as per information from Le Figaro. Details are expected to be provided to both parties in the coming days, with some officials now concerned about "potential legal actions," a source familiar with the discussions explained.

Legal Quagmire:

Two sides of the story are now being contested behind the scenes. Suez claims that a third round was to be held at the end of 2023 since they had just received new questionnaires from Sedif, and both parties were to consider the findings (released during the summer) of the national commission on water debate. Veolia, on the other hand, believes the tender process was nearing its end. It's now up to Sedif to decide if the information they had before the IT mishap is enough to declare a winner. In that case, they might rely on the 2017 "Transdev" decision by the Council of State: Transdev had mistakenly received a USB key with information about its then-competitor, Keolis, during the Lille metropolis tender process. Other scenarios are also being considered. Sedif might opt to apply a provision from the public procurement code, leading to Veolia's outright exclusion. "The granting authority may exclude from the procedure (...) those who have sought to obtain confidential information that could give them an undue advantage," the provision reads.

A legal puzzle, paced by the claims of both parties, could then unfold. The stakes could even go beyond administrative litigation if, for instance, Suez chose to sue Sedif for "favoritism." When contacted, Suez declined to comment but emphasized that "Suez Eau France, if necessary, will of course not give up any legal means to ensure its interests are respected." The stakes are significant for the company: if they end up winning, they would become the number one in the French water market.

This battle to supply drinking water to half the inhabitants of the country's most populous region is set against a backdrop of tension between the two entities. After one year and five months of fierce confrontations and several hundred million euros in costs, it was in January 2022 that the global leader in environmental services, Veolia (now led by Estelle Brachlianoff), officially became the owner of its main competitor, leading to the birth of the "new Suez." This entity was formed from assets not acquired by Veolia during its takeover bid and is now led by Sabrina Soussan.

"The tender process continues in strict adherence to the initial schedule, with the contract set to start on January 1, 2025," stated the communication director of Sedif, who did not wish to answer our questions.

RÉCIT - Un couac informatique de l’administration publique a semé le trouble dans un important appel d’offres.

Un contrat juteux de 4,3 milliards d’euros, des frères ennemis du capitalisme français, un fâcheux couac informatique, et l’embarras de l’administration publique… La bataille qui sévit entre Veolia et Suez autour de la production et la distribution d’eau potable pour 4 millions d’habitants de l’Île-de-France prend aujourd’hui des allures de scénario rocambolesque.

Lancée il y a deux ans, la procédure d’appel d’offres pour remporter ce contrat d’une durée de douze ans a brusquement été gelée au printemps dernier par le Sedif (Syndicat des eaux d’Île-de-France), alors que l’institution publique découvrait que des éléments de l’offre de Suez avaient été divulgués, par erreur, à son concurrent via la plateforme informatique d’échanges de documents censée être très sécurisée, révélait Marianne. «Je vous prie de bien vouloir télécharger les documents», indiquait un message daté du 4 avril à Veolia, l’opérateur historique de ce marché depuis plus d’un siècle, mêlant alors sans claire distinction ses documents à ceux du challengeur Suez.

Quelques jours après avoir pris connaissance de l’erreur, le Sedif avait diligenté un expert judiciaire pour comprendre comment Veolia s’était comporté une fois le couac survenu. Selon le rapport de 50 pages rendu fin juin, et révélé par Les Échos, l’expert concluait qu’«au vu des informations susvisées, la confidentialité des fichiers Suez téléchargés par l’utilisateur Veolia apparaît compromise». Il s’interrogeait sur le temps de réaction de Veolia (l’entreprise ayant informé le Sedif du dysfonctionnement le 10 avril) et cite notamment «des activités datant du 5 avril associées aux fonctions de copier-coller et impression». Des éléments qu’aurait rejetés l’expert informatique engagé par Veolia, qui travaillait avec l’expert mandaté par le Sedif, précise une source proche du dossier. Les équipes de Veolia s’agaçant auprès de quelques acteurs de la Place de Paris de se voir «renverser la charge de la preuve»…

Le vendredi 13 octobre, le bureau du Sedif s’est finalement réuni à huis clos autour de son président, André Santini - le maire d’Issy-les-Moulineaux -, pour tenter de résoudre le problème et décider de la suite que prendra la procédure, selon les informations du Figaro. Des précisions devraient être apportées dans les prochains jours aux deux parties, alors que certains élus s’inquiètent désormais de «possibles recours au pénal», explique une source au fait des discussions.

Imbroglio juridique

Deux versions de l’histoire s’affrontent désormais en coulisses. Suez assure qu’un troisième tour devait se tenir fin 2023, puisqu’il venait de recevoir de nouveaux questionnaires du Sedif et que les deux parties devaient prendre en compte les conclusions (rendues durant l’été) de la commission nationale du débat public sur l’eau. Veolia estimerait, de son côté, que la procédure d’appel d’offres était proche de sa fin. Il revient désormais au Sedif d’apprécier si les éléments dont il disposait avant le couac informatique sont suffisants pour désigner un vainqueur. Dans ce cas, il s’appuierait alors sur le précédent de l’arrêt «Transdev» du Conseil d’État de 2017: le groupe Transdev avait aussi reçu par erreur une clé USB avec des informations sur son concurrent de l’époque, Keolis, lors de l’appel d’offres de la métropole de Lille. D’autres scénarios sont également sur la table. Le Sedif pourrait choisir d’appliquer un texte du code de la commande publique qui conduirait à l’éviction, pure et simple, de Veolia. «L’autorité concédante peut exclure de la procédure (…) les personnes qui ont entrepris d’obtenir des informations confidentielles susceptibles de leur donner un avantage indu», indique le texte.

Un casse-tête juridique, rythmé des recours des deux parties, pourrait alors s’ouvrir… En allant au-delà du contentieux administratif, si Suez décidait par exemple de poursuivre le Sedif pour «délit de favoritisme». Contacté, Suez s’est refusé à tout commentaire, rappelant tout de même que «Suez Eau France, en tant que de besoin, ne renoncera, bien évidemment, à aucune voie de droit susceptible de faire respecter ses intérêts». L’enjeu est de taille pour l’entreprise: si elle finissait par remporter la mise, elle deviendrait le numéro un du marché de l’eau en France.

Cette bataille pour fournir l’eau potable à la moitié des habitants de la région la plus peuplée de l’Hexagone s’inscrit dans un contexte de tensions entre les deux parties. Après un an et cinq mois d’affrontements acharnés, et plusieurs centaines de millions d’euros de frais déboursés, c’est en janvier 2022 que le leader mondial des services à l’environnement Veolia (dirigé aujourd’hui par Estelle Brachlianoff) était officiellement devenu propriétaire de son grand rival. Et que naissait le «nouveau Suez», constitué à partir des actifs non acquis par Veolia dans le cadre de son OPA, et dirigé depuis par Sabrina Soussan.

«La procédure d’appel d’offres se poursuit dans le strict respect du calendrier initial pour un contrat démarrant le 1er janvier 2025», affirme de son côté le directeur de la communication du Sedif, qui n’a pas souhaité répondre à nos questions.

The new wave of U.S. chip manufacturing reflects a paradoxical new reality: Geopolitics are colliding with economics, and what’s good for one is pressuring the other.

Your next iPhone won’t be stamped Made in America. But pry open the casing in 2025 and you may see semiconductor chips that were etched into silicon in the Arizona desert.

While it will be scorching outside, the Phoenix “fab” gearing up to produce Apple’s (ticker: AAPL) chips will be cool, clean, and cutting-edge. Taiwan Semiconductor Manufacturing (TSM) is plowing $40 billion into the project, aiming to crank out 600,000 wafers a year. Apple CEO Tim Cook, at a “tool in” ceremony last year, said Apple would be “proud” to be the fab’s biggest customer.

That’s no coincidence. Apple is TSMC’s largest source of business, worth billions in annual revenue. Apple is looking for chip security, among many companies seeking to shore up supplies amid rising geopolitical tensions and fears over disruptions.

War breaking out between Israel and Hamas is just the latest worry for multinational companies. Russia’s invasion of Ukraine and escalating tensions between the U.S. and China are fragmenting global trade. Disruptions in chip supplies from the pandemic remain fresh. A global race is now on by companies and governments to secure supplies of chips that are critical to both their industrial strength and their militaries.

No company is caught in the crosscurrents more than TSMC. Producing the vast majority of advanced semiconductors in Taiwan, TSMC is the lifeblood for tech’s new applications like artificial intelligence and advanced military weaponry. Taiwan, of course, is a geopolitical flashpoint between the U.S. and China, which claims the island as its territory, while the U.S. has indicated that it would defend the island in the event of an invasion or attack.

Both for its security and customers like Nvidia (NVDA) and Apple, TSMC is building several plants overseas, with Arizona as a prototype. “Arizona is the first trial of our overseas megasite development,” said TSMC Chairman Mark Liu at a conference in Taiwan in September. The buildout is a “learning process,” he added, expressing confidence that it will be a “very successful project.”

Behind the scenes, Apple played a role in luring TSMC, according to some analysts, who said the iPhone maker leaned on the chip maker in a way only it could.

“It was like the Godfather made an offer you couldn’t refuse,” says Dan Hutcheson, vice chair of TechInsights, a semiconductor research firm. Apple threatened it might go elsewhere for chip supplies if TSMC didn’t come through with a U.S. plant, he said. And Cook “was instrumental” in getting former President Donald Trump to promise U.S. financial support.

TSMC, in a statement to Barron’s, said that “many factors” went into building in Arizona, adding, “The U.S. government also supported our decision to invest here.” Apple declined to comment.

Fueled by concerns about China, the U.S. has adopted the most friendly industrial chip policy in a generation. The 2022 Chips and Science Act included $39 billion in grants for manufacturing and 25% tax credits for construction. States such as Arizona, Texas, New York, and Ohio are also throwing in subsidies, aiming to capture economic gains from a chip revival.

TSMC is now leading a wave of U.S. manufacturing, including companies like Intel (INTC), GlobalFoundries (GFS), and Samsung Electronics (005930.Korea), which are vying for billions in subsidies. More than $200 billion of investment has been committed by chip makers, according to the Semiconductor Industry Association.

Yet places like Arizona—water-thirsty and far from TSMC’s highly efficient production in Asia—are hardly ideal for new fabs. “In Taiwan, TSMC is treated almost like royalty,” says Kirk Yang, chairman of Kirkland Capital, based part-time in Taiwan. “In Arizona, they’re just one of the good guys.”

A spokesperson for TSMC said that it would be more expensive to build in Arizona than Taiwan, “largely due to higher costs associated with construction and facility operations.”

So far, it has been a slog. Construction is going slow with mass production now expected to start in late 2025, nearly a year behind schedule, according to JPMorgan Chase (JPM) analyst Gokul Hariharan. Labor problems have piled up as TSMC vies with Intel and other tech companies expanding in the state. Difficulty with tool installation, uncertainty over subsidy payments, and weak demand for advanced processors are also contributing to delays, according to Hariharan.

Indeed, TSMC is building in Arizona amid a global chip downturn. Industrywide sales are expected to fall 10% from 2022 levels to $515 billion this year, according to the Semiconductor Industry Association. A recovery is expected next year, with AI stoking demand. But growing U.S. restrictions of chip exports to China are weighing on the market, with China accounting for 36% of sales for U.S. chip companies.

All of it is taking a toll on TSMC’s finances. Along with a new fab in Arizona, TSMC is building plants in Germany, Japan, and mainland China. The company is aiming for $92 billion through 2025 in capital expenditure, according to consensus forecasts. Its capex as a percentage of sales has risen and is denting free cash flow, which is expected to fall 22% this year to $12.3 billion before recovering to $20.5 billion in 2024.

Some analysts say that TSMC decided to build in Arizona more for political than economic reasons. “It was not a business decision,” says Needham analyst Charles Shi.

The business case makes more sense now that tensions with China have risen, pressuring customers like Apple, Nvidia, and Advanced Micro Devices (AMD) to branch out from Taiwan. But TSMC may be slow-walking construction in Arizona because it’s struggling to fill capacity in Taiwan, Shi says. The company now has global capacity for 16 million to 17 million wafers but may have trouble selling it all without a big sales revival. “That’s why they’re not really in a hurry to turn on Arizona,” he says.

One skeptic on the economics of Arizona appears to be Morris Chang, TSMC’s founder and former chairman. In a podcast last year, he described the Arizona plant as an “expensive exercise in futility.” TSMC’s foundry in Camas, Wash., built in 1997, still produces chips at 50% higher costs than in Taiwan, he noted, adding that he expects the Arizona chips to be “noncompetitive” in world markets. He could not be reached for comment.

Chip experts say that TSMC’s Arizona fabs will be costly to run. Handel Jones, a veteran industry consultant, calculates a 30% cost premium per transistor in Arizona compared with Taiwan, even after production has been optimized. Tools, materials, and equipment costs are comparable, he says, but TSMC’s operating efficiency, or chip yield per wafer, will remain higher in Taiwan, where the company has woven decades of expertise and quality control into its plants.

“In Taiwan, the technicians and engineers are highly trained, so you have a high level of equipment throughput, uptime, and fewer defects,” he says.

One other competitive advantage for TSMC’s home country is the weak Taiwan dollar, according to Brad Setser, a senior fellow at the Council on Foreign Relations and former Biden administration official. “It’s hard to overstate how undervalued the Taiwan dollar is on most measures,” he says, noting that it remains weaker than it was in 1997. A weak Taiwan dollar suppresses local labor costs and ramps up profits for goods sold in U.S. dollars. That has long been a structural advantage for TSMC in Taiwan, Setser says.

TSMC might not be in Arizona at all if the company weren’t a global choke point for chips. Almost all of its chips are made in Taiwan, accounting for 54% of global production and 80% of advanced chips, according to Morgan Stanley. Companies like Apple and Nvidia depend on TSMC for leading-edge chips, which go into things like iPhones, computers running AI apps, and self-driving electric cars made by Tesla (TSLA). Military contractors rely on TSMC for chips in things like drones, guided missiles, and communications gear.

TSMC aims to be the Switzerland of semis—a neutral player in a global tech arms race. The problem is that Taiwan is a geopolitical tinderbox. If China invades the island or disrupts supplies, manufacturing of leading-edge electronics, including aviation, communication, and military applications, would be disrupted, at the least.

“There are legitimate concerns about the ability of the U.S. to protect TSMC in the event of a military escalation,” says Setser. “The Chips Act was a strategic hedge against an invasion of the island.”

Concerns about Taiwan have led to massive investment in U.S. chip making. Micron Technology (MU) says it will spend up to $100 billion on a “megafab” for memory chips in upstate New York. Qualcomm (QCOM), GlobalFoundries, Intel, and Samsung are building foundries in the U.S. Ideally, the investments will lift U.S. chip production from roughly 12% of the world’s total today, a goal of the Chips Act.

Near term, the buildout is a boon for manufacturing; fabs going up in Arizona, Ohio, Texas, and other states are fueling demand for everything from water infrastructure to electrical work. TSMC’s Arizona complex is now one of the largest construction sites in the U.S., with 12,000 workers on the 1,000-acre campus. Long term, the semi tooling industry stands to win big, including companies like KLA (KLAC), Lam Research (LRCX), Applied Materials (AMAT), and ASML Holding (ASML).

“We’re making our supply chain less efficient because of geopolitics, and the winners will be the agnostic pick-and-shovel plays—the machine and tooling subsectors,” says Marko Papic, chief strategist of investment firm Clocktower Group.

If the goal of all the investment in U.S. chip manufacturing is security, it has a long way to go.

One roadblock is that TSMC and Taiwan aren’t abandoning their “silicon shield” strategy. By making Taiwan indispensable to global chip supplies, the country gave the U.S. and other countries strong economic incentives to defend the island. The strategy, originating in the 1970s, is even more powerful today, as chips have become indispensable to global commerce and weaponry.

TSMC still plans to produce its most advanced chips in Taiwan. One way to see that is in the race to cram the most transistors on a chip. Transistors are measured in nanometers, the size of a few atoms, with billions of transistors etched into each chip. More than 90% of global chip capacity below 10 nanometers is in Taiwan, and TSMC is on its way down to 2-nm production, leading the global industry.

Few of the announced U.S. fabs will match Taiwan for years, says TechInsights’ Hutcheson. Samsung is planning 4-nm production in Texas in 2024 and 3-nm chips in 2025. Intel is ramping up 3 nm now, aiming for 2 nm in 2025. Yet TSMC has produced 3-nm chips at high volume in Taiwan since early 2023 and is gearing up to start 2 nm next year. In Arizona, the first fab will start with 4 nm and a second will add 3 nm in 2026, putting Arizona a generation behind Taiwan.

America will still be a pit stop on a global chip tour. Most silicon wafers come from Japan. After wafers are processed in a foundry, individual chips need to be cut, attached to other “chiplets,” and connected to circuit boards. All of that happens in a global web of plants. TSMC controls much of the market for advanced packaging in Taiwan. The U.S. is far behind, though Intel is scaling up packaging in Arizona and has a plant under way in New Mexico, which could handle some of TSMC’s Arizona chips.

Taiwan is also a hub for “masks,” or design patterns for chips, says Mike Mayberry, former chief technology officer of Intel. “If you want a new product, you need new masks, and that’s done in Taiwan. It’s another example of a single point of failure.”

Security concerns aren’t the only force driving TSMC outside Taiwan. TSMC is riding a huge wave of demand for advanced chips, and the company is outgrowing Taiwan as a production hub, straining its energy, water, and engineering resources. “They really dragged their feet on expanding globally, but eventually you run out of room in Taiwan,” says an industry executive.

Making chips in the desert could raise costs for its customers, including its biggest one, Apple. Yet even Apple may have no choice but to pay more for chips and other components as it bows to geopolitical pressures.

Apple is now adjusting its global production network to bolster security. The company plans to shift some iPhone assembly to India and Vietnam, lessening its reliance on Foxconn (2354.Taiwan) in China. Domestically, Apple says it is investing $430 billion in research and development, manufacturing, and other initiatives through 2026.

If Apple, worried about Taiwan, had to lean on TSMC to make chips in the U.S., that would be in character, says Mayberry. “Apple is a commanding presence and can push suppliers around a lot,” he says. “TSMC is a big supplier, too, so you can’t make them do anything you like. I’d guess that Apple saw the political winds and said we need more of a U.S. presence.”

Apple probably won’t buy core processors from Arizona for future generations of iPhones; those will almost certainly remain in Taiwan. Jones estimates that Apple will still source 90% of wafers from TSMC’s fabs in Taiwan. But Apple could source chips for things like headphones, Air Tags, older-generation iPhones and iPads, cameras, and power management.

A big order might also come for 5G connectivity, Wi-Fi, and Bluetooth chips. Apple has tried for years to use its own modem chipsets, replacing those made by Qualcomm. The fabs in Arizona could produce them, says Needham’s Shi. “Apple can pull a lot of wafers out of Arizona for connectivity, even if Arizona stays one generation behind Taiwan,” he says.

Arizona does have benefits, including inexpensive land and seismic stability, which is critical for chip making. TSMC says that it will recycle most of the water it needs and will have flexibility to scale up production, with capacity for up to six fabs. The foundries will have leading-edge equipment, including “extreme ultraviolet lithography,” or EUV, machines for etching transistors onto wafers. An EUV is “very expensive and specialized,” says Mayberry. “You wouldn’t waste that on something that sells for peanuts; you’d use it for something that commands a premium—whether it’s a graphics chip for Nvidia, a central processing unit for AMD, or chip for Apple.”

Other customers are likely to be auto makers looking for chip security after pandemic-fueled disruptions. “The auto companies really want onshore supply,” says Jones, noting that chip suppliers like Mobileye Global (MBLY), Qualcomm, and NXP Semiconductors (NXPI) could source from Arizona.

Near term, TSMC will subsidize overseas production with profits from more-efficient fabs in Taiwan, says Shi. That’s one reason TSMC raised prices on chips in 2022 and 2023. But a chip glut may be building as global production ramps up; that could pressure prices and margins.

The wild card is friction with China. “The scale of Arizona tells me that TSMC and its customers so far do not think the threat from China is that material,” Shi says. A rise in tensions would probably accelerate an exodus from Taiwan, however, for all but leading-edge processors.

How profitable will it all be? The chip industry aims to hit $1 trillion in annual revenue by 2030, nearly double current levels. Strong demand for AI and other emerging tech could soak up fab capacity, regardless of higher operating costs or where it’s built.

TSMC and Apple, the industry’s titans, are expected to generate $37 billion and $109 billion of net income in 2025, respectively, up substantially from this year. Gross margins for TSMC could improve as the company’s capex levels off. But the price for geopolitical security is rising for everyone. Chip makers, consumers, and investors will ultimately bear the cost.

Pension and insurance companies have dumped UK equities, reducing the ability of companies to raise capital and expand

Corporate Britain is dying. But it is not a natural death. By forcing inherently uncertain long-term pension promises to become — at least notionally — certain, huge damage has been inflicted on UK capital markets and done to the country’s corporate sector. It is too late to undo the damage of opportunities foregone. It is not too late to stop inflicting more harm in the future.

I have written several columns on UK pension arrangements, the most recent in June. Present and prospective public sector pensioners and the current generation of private sector pensioners enjoy secure, income-related pensions. Younger generations of private sector workers will rely on uncertain returns from their own (mostly inadequate) savings. It is huge generational inequity. Yet, argues Michael Tory, co-founder of advisory firm Ondra and a co-author of a recent pamphlet on pensions from the Tony Blair Institute, the damage to capital markets and the corporate sector is an equally big issue.

The ratio of price to earnings of the FTSE 100 has collapsed, from roughly 17 times in 2006 to 11 times today. Investors’ valuations should reflect the present value of expected cash flows. Cash flows can be divided, on a rolling basis, into the actual dividends and buybacks made, or expected over the subsequent 10 year period and the cash flows thereafter — or the “terminal value”. A company that creates more value than it is distributing is building terminal value, while a company that distributes more than the value it creates is depleting it. According to Tory, the terminal value of UK corporations has collapsed from $1.6tn in 2006 to $0.9tn today. Yet, while the terminal value of UK large corporates is shrinking, that of their US equivalents rose more than 300 per cent and even that of German and French companies rose over 50 per cent. 

As Warren Buffett said, “In the short run, the market is a voting machine but in the long run, it is a weighing machine.” It has duly weighed UK corporates and found them emaciated.

Why has this happened? The answer starts with the dumping of UK equities by UK pensions and insurance companies. The share of their portfolios invested in UK equities has shrunk from more than 50 per cent to 4 per cent in the past three decades. Companies have also been forced to make £250bn in pension contributions to fill fictitious deficits. Just how fictitious was shown by the £1tn fall in their liabilities after the recent jump in interest rates. The shrinkage of the investor base has dramatically reduced the amount of capital raised by UK corporates.

All this has reduced corporates’ ability to invest and so grow. The resulting decline in the prospects for growth in earnings and so capital gains has then forced higher payouts, which have further reduced cash for investment. The shrinkage of the UK investor base has also increased the claims of non-UK investors. In 2004, 65 per cent of distributions stayed in the UK. By 2022, this was roughly 25 per cent. This, then, is a self-reinforcing vicious cycle of corporate self-liquidation.

None of this matters in fantasy financial economics, in which national borders are irrelevant, investment can be funded from anywhere in the world and markets are rational and far-sighted. But, in reality, US companies benefit hugely from favoured access to American capital markets, just as US investors benefit from superior connections to American corporates. Location matters. As UK businesses come to be increasingly owned by foreigners, the interests of the UK will come second.

A revival of UK capital markets is essential. This will require the recreation of large pools of local equity capital, which would enjoy the advantages of familiarity and contacts that come with residence. Such funds should not be forced to invest in the UK. But they should be able to see — and seize — local opportunities far better than outsiders.

Part of the answer is consolidation of surviving defined benefit funds. A tested solution — the Pension Protection Fund — is already established and proven. It has a successful consolidation record, with more than 1,100 funds absorbed so far. It can kick-start the process. Another part of the answer is a move towards collective defined contribution funds, in place of today’s plethora of smaller funds, of which there are over 3,000, according to Citi. Again, consolidation is essential.

The onslaught on the UK’s pensions sector and capital markets is among the greatest intergenerational injustices of all. Today’s prosperous old have destroyed the intergenerational pensions compact, by imposing the ludicrous aim of absolute security. In the process, they have also starved the capital markets, and so the corporate sector, on which their children and grandchildren will depend. This is a tragedy. It is also a call for immediate action.

The two nations have opposing ideas about atomic energy, threatening the EU’s transition away from fossil fuels

Near the French village of Fessenheim, facing Germany across the Rhine, a nuclear power station stands dormant. The German protesters that once demanded the site’s closure have decamped, and the last watts were produced three years ago. 

But disagreements over how the plant from 1977 should be repurposed persist, speaking to a much deeper divide over nuclear power between the two countries on either side of the river’s banks.

German officials have disputed a proposal to turn it into a centre to treat metals exposed to low levels of radioactivity, Fessenheim’s mayor Claude Brender says. “They are not on board with anything that might in some way make the nuclear industry more acceptable,” he adds.

France and Germany’s split over nuclear power is a tale of diverging mindsets fashioned over decades, including since the Chernobyl disaster in USSR-era Ukraine. But it has now become a major faultline in a touchy relationship between Europe’s two biggest economies.

Their stand-off over how to treat nuclear in a series of EU reforms has consequences for how Europe plans to advance towards cleaner energy. It will also affect how the bloc secures power supplies as the region weans itself off Russian gas, and how it provides its industry with affordable energy to compete with the US and China. 

“There can be squabbles between partners. But we’re not in a retirement home today squabbling over trivial matters. Europe is in a serious situation,” says Eric-André Martin, a specialist in Franco-German relations at French think-tank IFRI. 

France, which produces two-thirds of its power from nuclear plants and has plans for more reactors, is fighting for the low-carbon technology to be factored into its targets for reducing emissions and for leeway to use state subsidies to fund the sector.

For Germany, which closed its last nuclear plants this year and has been particularly shaken by its former reliance on Russian gas, there’s concern that a nuclear drive will detract from renewable energy advances.

But there is also an economic subtext in a region still reeling from an energy crisis last year, when prices spiked and laid bare how vulnerable households and manufacturers could become.

Berlin is wary that Paris would benefit more than its neighbours if it ends up being able to guarantee low power prices from its large nuclear output as a result of new EU rules on electricity markets, people close to talks between the two countries say.

Ministers on both sides have acknowledged there is a problem. “The conflict is painful. It’s painful for the two governments as well as for our [EU] partners,” Sven Giegold, state secretary at the German economy and climate action ministry, tells the Financial Times. 

Agnès Pannier-Runacher, France’s energy minister, says she wants to “get out of the realm of the emotional and move past the considerable misunderstandings that have accumulated in this discussion”.

In a joint appearance in Hamburg last week, German chancellor Olaf Scholz and French president Emmanuel Macron made encouraging noises over their ability to break the latest deadlock: a disagreement over the design of the EU’s electricity market. Ministers had been due to agree a plan in June but will now meet on October 17 to discuss the reform, aimed at stabilising long-term prices.

But the French and German impasse on nuclear has already slowed down debates on key EU policies such as rules on renewable energy and how hydrogen should be produced. Smaller member states are becoming impatient. The delay on the market design is “a big Franco-German show of incompetence again”, says an energy ministry official from another EU country who requested anonymity. 

“We have the problem with the competitiveness of the whole continent and we are focusing on how to get a competitive advantage [against] each other,” says Jozef Sikela, the Czech energy minister who chaired EU energy ministers’ meetings during last year’s gas crisis. “This way will not help us, it will not move us forward.”

Today’s deep disagreement over nuclear power was not always so stark.

France first laid out its intention to build up civil and military nuclear programmes in 1945. In the 1960s and ’70s there were even ideas about communal European nuclear plants.

The big accelerator for France was the 1973 oil crisis, which prompted a wave of reactor construction that gave it its current fleet of 56.

“Germany had some coal reserves, France had nothing,” says Bernard Accoyer, a former conservative politician in France and the head of a pro-nuclear lobby group.

The feat of engineering that followed is still a source of French national pride, although a series of outages at several reactors operated by state-owned EDF last year caused severe embarrassment and lost France its crown as the region’s top power exporter.

“Nuclear energy is part of France’s vital interests. The French would rather leave Europe than turn their backs on nuclear,” quips one senior French official.

Germany had its own reactors, including Soviet ones in the Communist east. But an anti-nuclear movement began to emerge in the 1970s when farmers and winegrowers in the south-west led opposition to a plant in Wyhl, also on the Rhine. 

That movement, nourished by fears of the atomic bomb, spawned what would later become Germany’s influential Green party, which today is a part of Scholz’s three-way coalition.

“Germany was at the frontier of the cold war and everybody knew the country would become ground zero in the event of a nuclear war,” says Arne Jungjohann, a political scientist.

After the Chernobyl disaster in 1986, that sentiment took root more deeply. Children in then West Germany were told not to play in sand and people ran inside when it rained out of fear of radiation levels. In some parts of Germany, certain types of mushrooms — and the wild boar that eat them — are still contaminated from the accident. 

The 2011 Fukushima disaster in Japan proved a point of no return. Former German chancellor Angela Merkel, who had initially pushed back plans by a previous Social Democrat and Green government to phase out nuclear power, announced closures that finally took place this year. 

“Before Fukushima . . . I was convinced that it was highly unlikely that [an accident] would occur in a high-tech country with high safety standards,” Merkel, a trained physicist, said in a speech three months after the accident. “Now it has happened.”

The government in Paris looked on aghast, former conservative president Nicolas Sarkozy recalled.

“I tell her — but Angela, what’s going on? How can this be?” he told a recent parliamentary hearing, in an account of their phone call. “She says, but Nicolas, have you not seen Fukushima? And I said — but where is the tsunami going to come from in Bavaria?”

Present-day public opinion in Germany is complicated. One survey in April found that less than a third of respondents backed shutting down the country’s nuclear plants. 

But across the river from Fessenheim, Stefan Portele, a father of four and resident of Breisach in the state of Baden-Württemberg, is relieved that the French plant is now offline. 

“It’s not safe. As long as nothing happens it’s fine, but if it does it’s a problem for millions of people,” he says. “This is still a region with the possibility of earthquakes. You never know. There hasn’t been one, but one is enough.”

On the French side, there is incomprehension, especially in the face of recent German decisions to re-fire coal power plants following the energy squeeze caused by the Russia-Ukraine war.

“Germany used to buy this nuclear power and now it is polluting us all the way here with coal,” says Dominique Schelcher, chief executive of the Système U supermarket chain and owner of Fessenheim’s store. 

The Fukushima disaster provoked some wobbles on nuclear power in France too. After a parliamentary pact with the Green party, socialist president François Hollande sought to trim reliance on the sector, which eventually led Fessenheim to be closed in 2020. The decision was endorsed by Macron after he came to power in 2017.

But by 2022, Macron had performed a volte-face and doubled down on the technology, announcing a €52bn plan for at least six new reactors and the extension of the lifespan of other sites.

German objections to France’s pro-nuclear strategy partly reflect an ideological stance felt especially strongly by the Greens — including the vice-chancellor Robert Habeck, whose ministry for economy and climate action leads negotiations on energy matters.

Giegold, who works in the ministry, says it is “totally wrong” to claim that Germany is “leading a European crusade against nuclear power”. He says he does not dispute France’s right to generate atomic energy, only the right to use EU funds to do so. “We can finance together what we agree [on] with each other,” he says.  

But other Green party figures in Berlin privately voice concern about the safety of France’s ageing fleet. 

One person familiar with the government’s thinking pointed to the EDF shutdowns last year to fix so-called stress corrosion issues and said that the country’s nuclear safety agency was “doing its job”. 

He added, however, that he feared one day “politicians [could] over-rule the nuclear safety agency”, arguing that the world has experienced a serious nuclear accident roughly every 25 years and that “the 2030s will be a dangerous decade”.

Germans also fear the French are playing a dirty game on subsidies. Prices in the EU’s electricity market are dictated by supply and demand, with power flowing to where demand is greatest. But national subsidies, which need to get the green light from Brussels, play a role in incentivising new investments, including in renewable energy. France has been pushing to be able to use some of these instruments more broadly on its existing nuclear assets as well as any new plants.

It wants, for example, to have greater access to “contracts for difference”, which set a minimum price guarantee for power providers but also a ceiling above which the state can recover any revenue. That could then potentially be reverted back to consumers and businesses on their power bills, helping to keep prices low.

“The entire debate is not so much a debate on nuclear technology, but more about industry policy and gaining advantages from cheap energy for its own industry,” says Markus Krebber, chief executive of RWE, Germany’s biggest power generator in terms of output.

A German idea mooted by Habeck for a state-subsidised electricity tariff for energy-intensive industries has similarly raised eyebrows in France and beyond, as it would also give Germany a competitive advantage.

Pannier-Runacher, the energy minister, says France is now trying to debunk “fantasies” that have arisen over what it is trying to achieve. French officials say this includes concerns they have heard from German counterparts that France could try to lure German manufacturers to the country with its more favourable energy regime, a stance they reject.

The misunderstandings took a turn for the worse this year despite previous attempts by Macron and Scholz to put on a show of unity, including at a meeting at the Élysée Palace in January. That resulted in a joint declaration with a specific embrace of hydrogen produced from “low-carbon” sources — a byword for nuclear — which was welcomed in Paris.

But weeks later negotiations over EU legislation on “green” hydrogen production, and whether nuclear power could play a role, met with objections from Berlin. It opened a period of stand-offs that included the French pulling support for new rules governing renewables in the EU at the last minute, citing a lack of recognition for the role of nuclear fuel.

The episode at the start of the year was a wake-up call over how complicated it would be to strike deals when Germany was governed by a fractious coalition, officials in Paris say.

In recent months, France has created a nuclear alliance backed by 14 countries, including Czechia, Poland and Hungary, and Pannier-Runacher says the issue is not “just a Franco-German problem”.

But France is disproportionately reliant on nuclear production compared to most EU countries, and the state-owned operator of its fleet, EDF, has a dominant market position.

France began to lobby for nuclear to be added to various texts under negotiation in multiple EU meetings this year in a way several countries found excessively pushy, according to EU diplomats and officials.

French diplomats raised their concerns on the omission of nuclear or “low-carbon” power in texts concerning everything from agreements for energy supplies with third countries to deals on what industries should be prioritised in the bloc’s “net zero industry act”.

“It was really a 360-degree strategy,” says one senior EU official.

The European Commission says that it maintains a stance of “technology neutrality” and will not intervene, as power policies are national prerogatives. But France and other countries with nuclear fleets, such as Finland and Czechia, say that by prioritising renewable power the commission is disregarding other low-carbon options.

“There is a lot of legacy regulation, which from the start has been biased against nuclear power,” says Atte Harjanne, parliamentary leader of the Finnish Greens, a rare pro-nuclear Green party in Europe. “There is a lot of work to make any new regulation technology neutral, but you are already lagging behind.”

The commission had not foreseen a growth in nuclear power returning to Europe and had assumed that it would be stable and decline as countries pushed towards the EU’s goal of net zero emissions by 2050.

But the realisation of how massive the expansion of available decarbonised electricity will need to be to feed everything from cars to households had “foster[ed] its renaissance”, the senior EU official says.

Vehemently anti-nuclear states such as Austria and Luxembourg still argue that investment in expensive nuclear power plants takes away from greener and cheaper renewables, noting that France was the only EU country not to hit its renewables targets in 2020. 

Last Tuesday, Macron and Scholz raised some hopes that the blockage on the electricity market reform at least could be resolved, with the French president flagging “very encouraging discussions” and a potential deal by the end of the month.

It is still not clear what that could entail, however.

Henning Gloystein, director for climate, energy and resources at Eurasia Group, says that if both Germany and France entered into a tit-for-tat on energy subsidies, each allowing the other to support their industries with low prices, “it’s possibly the death of the EU wholesale power market as most consumption would be locked into fixed prices”.

In the longer term, nuclear advocates are hoping that a more serene debate can emerge over the technology. 

Pascal Canfin, a liberal French MEP who is close to Macron, says policymakers will have to acknowledge that while nuclear is “not green”, “it is clearly part of the solution, so we should not exclude it from financing and so on”.

“When I interview for media and describe my view in Finland, I get private messages [from German Greens] saying you have a point,” Harjanne, the head of the pro-nuclear Finnish Greens, says.

But in Fessenheim, a cartoon in the mayor’s office gives a flavour of the lingering divisions. It shows on one bank of the Rhine the nuclear plant and on the other a coal power station and wind turbines with groups of French and German workers each saying: “They don’t understand anything!”