France's new weapon for economic sovereignty is not the veto but the boardroom

OPEN YOURS IF you are tempted to dismiss France's tightening of foreign-investment rules as mere protectionism. The real story is more subtle, and more instructive for anyone who thinks open markets are the default setting of advanced economies.

France is not blocking foreign capital. It is reshaping who controls it.

The country's foreign-direct-investment (FDI) screening regime has evolved from a blunt firewall into a sophisticated governance apparatus. In 2025 the French Treasury received 417 filings, a record for the decade, up from 105 in 2014 when the current system took shape under Arnaud Montebourg, then industry minister. Most of those deals are cleared. Outright vetoes remain rare: only six in the past three years, according to the authorities' own annual report. But the deal that is permitted is no longer the deal that used to be.

The shift is best illustrated by what is happening to conditional clearances. In 2024, French authorities imposed mitigation measures on 54% of approved foreign investments, up from 44% in 2023 and well above the 5% rate in Germany, which relies on a far more permissive model. For transactions involving research into critical technologies, the figure rises to 61%. Those conditions now go well beyond traditional national-security safeguards. They require firms to keep production in France, retain patent portfolios domestically, and establish security committees whose strategic decisions must be approved by a state representative. The French government is buying a seat at the table.

The most dramatic illustration arrived in January 2026, when the economy minister blocked a deal to sell €550m of Eutelsat's terrestrial ground infrastructure to EQT Infrastructure, a Swedish private-equity fund. The transaction was not objectionable on the buyer's merits. It was the asset itself: ground stations that connect satellites to terrestrial networks and support both civil and military uses. Eutelsat already has a ten-year framework agreement with the French army worth up to €1bn. The state, which holds nearly a 30% stake in the company, concluded that divesting the ground segment would create an unacceptable sovereignty risk. The veto was a warning shot, not an outlier.

What is more interesting is the pattern that follows. In cases such as the proposed acquisitions of the pharmaceutical group Biogaran and the space firm Exaion, the French government has moved beyond behavioural conditions into shareholding and governance remedies: golden shares, board seats, and the entry of French investors such as Bpifrance (the state-backed development bank) into the capital. The state does not necessarily block the deal. It secures a role in governing its aftermath.

This approach is now being codified. A bill tabled in March 2026 would systematise governance remedies through a "proxy board" - an alternative board of directors vested with veto power over strategic decisions in sensitive companies. The logic is not hard to see. An outright veto draws political fire and deters capital altogether. A governance remedy preserves the transaction while giving the state a permanent lever on the target's future. It is industrial policy by remote control.

The French experiment is not happening in isolation. On March 4th the European Commission presented a draft regulation known as the Industrial Accelerator Act, which would condition FDI in strategic sectors on value-added criteria, including jobs, research spending, technology transfer, and sourcing. And on June 8th the EU Council cleared a new Foreign Investment Screening Regulation, effective from 2027, that extends the list of covered sectors to include all dual-use goods, electoral infrastructure, financial services, and critical technologies such as artificial intelligence, semiconductors and quantum computing. France is pioneering what Brussels intends to generalise.

To be sure, the security case is real. The concentration of global investment in AI chips, satellite infrastructure, and pharmaceutical capacity makes host countries vulnerable to supply shocks and foreign leverage. The Chinese state's role in strategic sectors - and, in a different register, the extraterritorial reach of American export controls - has given every European government a reason to think twice before ceding control of assets it once considered unremarkable. A regime that requires scrutiny before foreign investors acquire sensitive capabilities is not inherently illiberal.

The trouble is that France's version of scrutiny has a second-order effect that goes beyond security. It is changing the economics of capital allocation in the sectors it covers. When a foreign acquirer knows that it must share governance with a state-appointed board, that its strategic decisions require ministerial approval, and that its R&D must remain in a particular jurisdiction, the deal becomes riskier and more expensive. The French authorities are explicit that they welcome foreign investment - provided it does not undermine "business continuity, control over critical assets, or certain structuring decisions", as the Ministry of the Economy puts it. That proviso is the entire point. It is also the entire cost.

Consider the case of Fnac Darty, the French electronics and books retailer. The Swiss EP Group's takeover bid was ultimately approved, with foreign-investment clearance obtained on March 26th 2026 and the offer opening on May 12th. But the process took months and required navigating not only French FDI rules but also the EU's Foreign Subsidies Regulation. The delay and uncertainty are the tax. They fall on both buyer and seller, and on the firm's employees and customers who live through the limbo.

The comparison with Germany is instructive. German authorities impose restrictive measures on only about 5% of screened cases, according to figures cited by the French authorities' own advisers. Germany's system has produced less friction but, critics argue, has also left it less able to shape the outcome of deals involving strategic firms. France has chosen the opposite path: more friction, more state influence, and the expectation that the market will adapt. Which approach is superior depends on whether one thinks the benefits of state oversight in critical sectors outweigh the costs of a heavier regulatory tax on cross-border investment.

For investors, the lesson is not that France is hostile to foreign capital. Nearly two-thirds of FDI filings in 2024 came from outside the EU, led by the United States, Britain and Switzerland. France was the leading European destination for foreign investment projects in 2024, according to EY's attractiveness survey, handling 1,025 projects, compared with 853 in Britain and 608 in Germany. The deal flow remains strong. The lesson is that the cost structure of those deals is changing. Governance risk, not outright prohibition, is becoming the main constraint on cross-border acquisitions in Europe's second-largest economy.

The broader lesson for policymakers is harder to ignore. If France's governance model becomes the EU-wide standard - and the Commission's proposals suggest it is moving in that direction - European cross-border M&A in strategic sectors will face a new layer of political risk. That risk is not insurmountable. It is, however, a departure from the post-war assumption that investment rules would be narrow, transparent, and predictable. They are none of those things now.

The danger is not that France's regime will collapse under its own weight. It is that it will succeed too well, becoming the template for a European economy in which the state has a seat on every important board. Competition, not control, is the better way to keep critical industries strong. But competition requires markets that are open enough for rivals to enter and fail. A governance model that embeds the state in the strategic decisions of private companies is a long way from that ideal.