By Julien Ponthus and Emmanuel Jarry
PARIS (Reuters) - The French government struck a deal with ArcelorMittal
Prime Minister Jean-Marc Ayrault said the two furnaces would not be restarted for now, given weak European steel demand, but ArcelorMittal would keep them in working order for future use in a test project for environmentally friendly steel production.
The deal saves face for Socialist President Francois Hollande, allowing him to fulfill an election pledge to fight industrial layoffs while avoiding the temporary nationalization of the site his industry minister had threatened.
"The government decided against the idea of a temporary nationalization," Ayrault told reporters, three hours before a midnight deadline to strike a deal, adding: "There will be no redundancy plan."
The investment would reinforce cold steel and packaging operations at Florange and secure jobs in those areas, Ayrault said. He added ArcelorMittal had pledged that its investment in Florange would not come at the expense of other sites in France.
The deal, the result of months of talks, came as the Italian cabinet was meeting to approve a rescue plan for ILVA, Europe's largest steel plant with 20,000 workers, which is threatened with closure after an alleged environmental disaster.
The European steel industry is struggling with overcapacity at a time of recession in the euro area and cheap competition in emerging markets.
Florange, set in France's former industrial heartland near the German border, has become symbolic of the country's long industrial decline and a test case for whether Hollande can make good on a vow to reverse a relentless surge in unemployment.
ArcelorMittal said earlier this year the Florange site's two furnaces were not viable but Hollande insisted they should be kept open and threatened a temporary state takeover of the site while the government sought a permanent buyer.
The two blast furnaces together employ 600 out of the 2,700 workers at the entire site.
Ayrault did not give any detail of where the workers would be placed from now on, or a timeframe for any future project to revamp the furnaces using European Union credits to produce environmentally friendly steel.
Hollande's government faced roars of criticism from business leaders this week over its threat to nationalize Florange.
Industry Minister Arnaud Montebourg, who shocked foreign investors this week by saying Arcelor's Indian chief executive Lakshmi Mittal was no longer welcome in France, had said the government had identified an industrialist ready to inject 400 million euros into the site.
Earlier on Friday, Montebourg huddled in a cafe with a group of orange-vested metal workers protesting near the finance ministry, telling them nationalization was still an option.
Yet Hollande, who is battling to appease both left-wing voters angry at unemployment and foreign investors impatient to see structural reforms, is wary of the stigma even a temporary nationalization would carry abroad.
Officials had defended the idea of a temporary nationalization, saying it was a special case because ArcelorMittal has broken promises to keep the furnaces running.
But ArcelorMittal denies breaching commitments. Sources close to the group say Arcelor planned in 2003 - before its 2006 takeover by Mittal - to wind down inland blast furnaces in Europe, including the two in Florange, by 2010.
The group says overcapacity in Europe's steel market, with demand 28 percent below peak 2007 levels, has made Florange's furnaces uneconomical and that a buyer would have to absorb deep losses to take them on, even with the rest of the site.
In Rome, the Italian cabinet was reviewing a decree on Friday to secure the future of the troubled ILVA steel plant after discussions between Prime Minister Mario Monti and the management on Thursday.
ILVA is a major employer in a jobs black spot in southern Italy and is threatened with closure over concerns toxic factory emissions increased deaths from cancer and respiratory diseases in the surrounding area of Taranto.
($1 = 0.7689 euros)
(Reporting by Nick Vinocur, Emmanuel Jarry, Julien Ponthus and Brian Love in Paris and Phil Blenkinsop in Brussels; Writing by Nick Vinocur and Catherine Bremer; Editing by Sophie Hares)