“The growth of foreign investment in France is synonymous with the consumption of domestic capital held by France”

2023-06-19 08:00:06

Following the “Choose France” day on May 15 in Versailles, the government and the press widely discussed the 1,725 ​​foreign direct investment projects (+ 7%) filed in 2022. France would therefore represent the strongest area of ​​attractiveness in Europe, ahead of Germany and the United Kingdom.

We will not go back here on the relevance of this indicator, the commentators having already noted that the hierarchy between the three countries is reversed if we classify these projects in terms of value, number of jobs generated per project, or balances between arrivals and departures of external operators already established.

We will therefore rather examine the mechanisms at work to explain these flows of resources, and their final results, which may be less exciting than one might think. As everywhere else in the European Union (EU), you can obviously only invest in France if you have euros.

A special option

If external operators “buy” these euros from us in exchange for their own national currency, France then has a claim on the economies from which these foreign currencies come. For example, if Japanese investors give us yen in return for the euros they need to do this, France might buy a firm in Japan using these yen. More generally, France would have the right to purchase capital, goods or services produced by the Japanese economy.

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If these investors have to borrow the necessary euros from France, they will have to repay the principal, that is to say the initial value of the asset purchased or created, increased by the interest on the loan, which is supposed to correspond to the rate of return on the investment.

In short, they will return to France a quantity of euros large enough to allow it, if it wishes, to buy back the capital created or purchased by the operators. On the other hand, if this investment is financed using euros already held by foreign operators, the equation is different.

In the case of a France in deficit vis-à-vis the EU

France then acquires no claim on foreign economies and no means of redeeming the invested capital. It only gives up its right of ownership (and therefore of control) over part of its domestic production structure. But how might foreign investors hold euros that they would not need to borrow (and therefore return to us) or exchange for their own currencies?

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