Industry minister Nicole Fontaine insisted Mr Fourtou was "an excellent candidate" to replace Jean-Marie Messier There is fear and uncertainty among the company's investors but the corporate and political establishment is also concerned

It was an improbable story. A French civil servant turned merchant banker and media tycoon tries to revolutionise his country's cosy approach to capitalism by moving one of its oldest companies to New York's Park Avenue.

There is no happy ending for Mr Jean-Marie Messier. He has been ousted not only by his French and US shareholders and his fellow directors, but also by the new French right-wing government under President Jacques Chirac. This formidable alliance has forced him to resign as chairman and chief executive of Vivendi Universal, the media group he built out of the old Compagnie Générale des Eaux utility.

He leaves behind fear and uncertainty among investors. On Monday, Vivendi Universal shares rose 9 per cent on the back of expectations of Mr Messier's imminent departure. When his departure was finally confirmed, they initially fell nearly 40 per cent as investors digested allegations of attempted accounting improprieties and a downgrade of the company's debt to junk status. The shares ended the day down 25 per cent.

The travails of Vivendi are just as much a concern to the country's corporate and political establishment. The left-wing opposition, smarting from its defeat in recent presidential and legislative elections, yesterday called for a parliamentary inquiry and an investigation into Vivendi by the stock market regulator. It was left to Ms Nicole Fontaine, the new industry minister, to reassure investors.

Ms Fontaine insisted that Mr Jean-René Fourtou, deputy chairman of the Franco-German Aventis pharmaceuticals group, was "an excellent candidate" to replace Mr Messier and the company did not face an immediate break-up. She also echoed a remark of General Charles de Gaulle during a past run on the franc that "French politics are not conducted in the ring of the Bourse".

Yet Vivendi is not alone among large French communications companies in facing a crisis of confidence.

France Telecom has built up a €70 billion debt and may need a huge rights issue to repair its balance sheet. Some finance ministry officials have even started to think about the possibility of renationalisation.

Alcatel, the telecommunications company that emerged from the old Companie Générale d'Electricité, is facing financial problems and may shed 10,000 more jobs.

The Vivendi affair in particular has damaged efforts by the French government - and the former left-wing administration of Mr Lionel Jospin - to reduce the level of state control in the economy. It could make it harder for the new government to adopt a liberalising approach and complicate privatisation plans.

A central problem is that French citizens may become more reluctant to invest in equities, and particularly in new privatisations.

"Small savers were encouraged to abandon fixed-income investment and take the plunge into equities during the stock market boom of the 1990s," said one Paris investment banker yesterday. "Many have been badly shaken and are clearly reluctant to return to the equity market."

The Messier saga could also reinforce France's long-standing suspicion of "Anglo-Saxon style" capitalism. This attitude pervades the corporate and political establishment, as well as popular opinion. It had already been given some encouragement by the Enron bankruptcy and the WorldCom scandal in the US before the full scope of Vivendi's problems became clear.

This has alarmed those who would like to see further liberalisation. Ms Colette Neuville, France's leading corporate governance activist, said the Vivendi affair showed the urgent need to tackle flaws in the operation of markets and corporate governance. If this is not done, France could easily return to state intervention, she said.

"If we don't do something, then dirigisme will return at the gallop," she added.

Mr Marco Becht, a professor on corporate management at the Université Libre de Bruxelles, argues that Mr Messier's leadership of Vivendi is an isolated case.

"Vivendi Universal looked to me like an American company and Messier tried to be a US-style businessman. He was allowed to do it and no one controlled him when he was riding the tech bubble. But the other large French groups are currently suffering because of more traditional French problems."

Mr Jean Peyrelevade, chairman of Crédit Lyonnais who inherited the French bank's disastrous foray into Hollywood after backing the acquisition of MGM by an Italian financier, said yesterday that chief executives should never forget "they represent a group of shareholders".

He said it was now necessary to introduce a formal process for boards to evaluate every year the performance of the chief executive.

Until the privatisation wave of the past decade, French governments and big companies tended to work hand in hand. Many of the patrons of large French companies have been members of the énarque establishment, graduates of the Ecole Nationale d'Administration that has groomed generations of French politicians, civil servants and corporate bosses.

Numerous patrons have, at some stage, worked in government ministries before being rewarded with a top corporate job in a state company. And, until recently, France had a director of industry - a top civil servant who helped the government fashion industrial policy. The current heads of Renault and of the French railways are former directors of industry.

The interventionist model did not prevent companies expanding and restructuring. Indeed, Vivendi Universal's disastrous US adventure was no worse than Renault's acquisition of American Motors in the late 1970s, which ultimately cost the chairman his job. And the approach has had some success internationally.

Rhône-Poulenc, formerly a near-bankrupt, state-controlled chemicals group, has combined with Hoechst of Germany to form Aventis, based in Strasbourg. Renault's partnership with Nissan has worked well.

The system also closed ranks when it came under external threat. Thus the French authorities backed the oil merger of TotalFina and Elf to prevent Elf combining with Eni, the Italian oil group. When Carlo De Benedetti mounted his raid on Société Générale de Belgique, the Belgium company with strong French connections, the French establishment rallied to its support with the Suez group acting as the white knight.

As a result, even right-wing politicians in France continue to be suspicious of full-blown economic liberalism. The state had no direct stake in Vivendi but that did not prevent Mr Chirac working behind the scenes to limit the financial and political damage caused by Mr Messier's fall. What worried Mr Chirac most was the risk that the group's French media and utility assets could fall into foreign hands.

The government now hopes that Mr Fourtou can re-establish some stability at Vivendi. It is probably not a coincidence that Mr Chirac, then France's prime minister, called in Mr Fourtou to take charge of the restructuring of Rhône-Poulenc in 1986. Mr Chirac is thought to be anxious that both Canal Plus, Vivendi's pay-television arm, and Vivendi Environnement, which has contracts to supply water to numerous French municipalities, remain in French control.

For her part yesterday, Ms Neuville acknowledged an element of French nationalism in the government's interest in Vivendi. But she insisted that broader problems of capitalism, including the failure of company boards, credit rating agencies and stock analysts to play a proper monitoring role, merited a political response.

"This type of affair goes beyond the business of a single company and affects the functioning of capitalism," she said.