By Nicholas Vinocur
PARIS (Reuters) - The head of France's employers union branded government plans to take over ArcelorMittal's Florange steelworks as "scandalous" on Thursday, leading the government to accuse her of overlooking the company's practices.
The government is locked in talks with ArcelorMittal on the fate of two blast furnaces at the site that the company plans to shut down unless it can find a buyer by Saturday.
The case has been seen as a test of Socialist President Francois Hollande's vow to stem a glut of layoffs and reverse years of industrial decline in France.
But MEDEF employers union chief Laurence Parisot said nationalizing the steelworks went against the principle of private property, after Industry Minister Arnaud Montebourg said the government was ready for a temporary takeover.
"This statement is purely and simply scandalous," Parisot told RTL radio. "To undermine the principle of private property in this haphazard way is very serious and, what's more, very costly."
Parisot said such an operation would be an "expropriation", leading the government to accuse her of overlooking flaws in Luxembourg-based ArcelorMittal's business practices.
"I would have liked it if she used that word ('scandalous') when the owner of this site was transferring a chunk of profits from French sites over our borders, notably to Luxembourg," Budget Minister Jerome Cahuzac said.
Cahuzac said Parisot ignored what he described as the company's unfair winding down of an economically viable site to maximize profit.
The government is studying a temporary takeover of the site in northeastern France, bringing in a private investor to operate the steelworks and keep open the blast furnaces, which employ 600 people out of a total 2,700 at the site.
Energy Minister Delphine Batho dismissed Parisot's comment and noted the government had no plans to be a long-term owner.
Even right-wingers have rallied to the government's side on Florange, with a former adviser to ex-president Nicolas Sarkozy endorsing Montebourg's plans for the site.
Officials say that temporarily nationalizing the site would be legal and that ArcelorMittal would be compensated for any forced sale. The state would become part-owner only until a permanent owner was found.
They argue that a temporary takeover of the Florange site would be similar to the U.S. government's bailout of car makers including General Motors during the 2008-2010 economic crisis, which has been touted as a success.
Critics, however, question the choice of pumping state money into the ailing steel sector when France is striving to improve its competitiveness and press ahead with structural reforms.
"Nationalising a company in a struggling sector to save jobs will only push others to ask for the same treatment," said Elie Cohen, an economist at the CNRS research institute.
Analysts said the French state's plans could clash with EU law and leave it open to legal attack by ArcelorMittal, however.
"Quite how such a process would work is unclear," said Ben Jones, France analyst at the Economist Intelligence Unit. "It seems doubtful whether necessary legislation would be consistent with European Union state aid rules."
Finance Minister Pierre Moscovici has sought to calm fears the plan could herald a wave of nationalizations, saying it was a one-off and appropriate given that CEO Lakshmi Mittal had broken vows to ensure the site's viability.
ArcelorMittal denies breaking its commitments. Sources close to the group say it planned before its 2006 takeover by Mittal to wind down operations including the two furnaces after 2010.
They argue that overcapacity in Europe's steel market has made Florange's furnaces economically unviable, and that a buyer is unlikely to take them on without the rest of the site.
(Additional reporting by Jean-Baptiste Vey, Yann Le Guernigou and Catherine Bremer in Paris and Philip Blenkinsop in Brussels; Editing by Hugh Lawson)