Comment: A nation left transfixed by the battle of the banks

THE FRENCH used to do these things differently. They may wish that they still could. A decision will be made today on an audacious, and possibly foolhardy, attempt to merge three French banks, over the elegantly-suited bodies of two of them. If approved, the deal would be the biggest takeover in French history. It would create the largest bank in Europe - a powerful, maybe muscle-bound, institution with assets of pounds 14bn - bigger than Barclays and Natwest rolled into one.

The struggle has become a paradigm of a changing France: a country forced to adjust to and play by the rules of the new European and global economies but still anxious to preserve as much of French exceptionalism as possible. The outcome looks certain to be a giant muddle, as if two jig-saws were jammed together in one puzzle.

For the past five months, the battle has plunged the cosy and clandestine world of French banking, and business, into the noisy Anglo-Saxon world of hostile bids, counter-bids, shareholder power, public insults and dirty tricks. Worse, it has blown a hole in the sacrosanct, French August holidays. Even the governor of the Bank of France, even the Minister for Finance, have been obliged to leave their pool-sides in the Midi and return to the alien land of tourist-occupied Paris for the decisive meeting.

Ten years ago - even five years ago - none of this could have happened. It might well have been decreed that three French banks should merge in the strategic interests of France. But nothing would have been left to chance, the markets or public scrutiny. The deal would have been made by the senior officials of the Ministry of Finance, the Bank of France and the bosses of the banks concerned. All would have known each other well. All would have been products of the top lycees and the elite civil service college, the Ecole Nationale d'Administration and most probably members of the Inspection des Finances, the brotherhood of the academic creme de la creme which dominates French politics, bureaucracy and business.

In some ways, nothing has changed. Most of the major players in the unseemly (in French terms) banking struggle of the past three months would still answer the above incestuous descriptions. Most of them come from the elite institutions and administrative corps. Most know each other well.

In other ways, however, everything had changed. France has stealthily, for good or ill, unnoticed even by the President of the Republic, become part of a global economy. Two of the banks at the centre of the struggle - Paribas and Societe Generale - are majority foreign owned, but not foreign controlled. In other words, a majority of their shares is held by a patch- work of foreign banks and foreign pension funds, even if they are still French-run. Until the banking row broke out, President Jacques Chirac had no idea that foreign pension funds had become such powerful players in the French economy. He made a speech last month in which he said, in effect, that he was not sure what such a development meant but that he was, probably, against it.

Chirac had broadly grasped the point: the old French rules; the old cosy, dirigiste arrangements can no longer apply. Or not entirely.

The Socialist-Communist-Green government of Lionel Jospin has been content, for the most part, to let the markets and the shareholders decide the outcome of the three-way mega-bank battle. In truth, it had little choice: foreign investment institutions cannot be bullied or cajoled like French grandees. However, the French state has been reluctant to give up control completely. The shrewd and languid finance minister, Dominique Strauss- Kahn, has been striving to prevent one outcome that Paris refuses to contemplate: that one, or all, of the contending banks should fall under foreign (including European) management.

Perversely, that is exactly what might now happen.

Throughout most of last year, Banque Nationale de Paris (BNP) and Societe Generale had been secretly discussing an old-style French pre-cooked merger. The deal made no progress largely because the heads of the two banks, Daniel Bouton of SG and Michel Pebereau of BNP, hate each other's guts.

In February, Pebereau got a call on his mobile while on the golf course one Saturday morning. He was curtly informed that SG was ceasing negotiations: instead it was proposing a friendly merger with the merchant bank Paribas.

Pebereau struck back in March with a stunning, hostile bid for both SG and Paribas, the largest financial transaction ever proposed on the Bourse. Since then, both sides have waged an exceedingly un-French public war, feeding rumours and disinformation to shareholders, taking out large blocks of advertising space in the French press and accusing each other of betraying the "national interest".

The shareholders' response to the rival bids - SG for Paribas, and BNP for both the others - was announced at the weekend. Paribas shareholders had overwhelmingly (more than 60 per cent) accepted the higher bid from BNP. More than 36 per cent of SG shareholders (mostly the foreign institutions, it is believed) had also accepted the BNP offer.

Mr Bouton and SG were defeated; but Mr Pebereau and BNP had bought the wrong bank. BNP never really wanted Paribas: it wanted SG.Mr Strauss- Kahn and the banking supervisory committee face a hopeless choice when they meet in Paris this evening. Under the rules, they can dismantle the BNP bid for SG on the grounds that it has failed to achieve a controlling position. This would almost certainly hand a weakened SG to a foreign buyer. On the other hand, they can pretend, in effect, that the three- way merger has succeeded and order all parties to work together, which would lead to months of confusion .

Maybe, the old way - Gauloise-filled rooms - was better after all. In truth, the messy outcome is symbolic of France's schizophrenic attitudes to its position in a changing Europe and a changing world. We, in Britain, have no problem with our strategic industries falling into foreign hands, but we detest the idea of a single European currency or single European economic policy to manage the problems of globalism. France - for the most part - embraces pan-European policy-making, but detests the idea of foreigners controlling French industries (even if it turns out that foreign institutions already own them).

It is difficult to say which position is the more incoherent.