Steelmaking may have been invented in Europe, but it is the rest of the world which, increasingly, has successfully exploited it.

So the good news for Europe about the foundry mega-merger announced on Monday is that it will see the region boast the world's largest steelmaker for the first time in more than a century.

The sector's heavyweight belt was stolen by the US in the 1880s and, more recently, snatched by Japanese and Korean steelmakers.

But the question mark which, nonetheless, hangs over the proposed merger of Spain's Aceralia, France's Usinor and Arbed of Luxembourg is whether it will work.

Changing sector

The deal would not be the first fusion of European steelmakers to suffer post-merger fatigue.

Only three weeks ago Corus, the firm formed in 1999 from British Steel and Holland's Hoogovens, announced the loss of 6,000 jobs in its latest efforts to realise the benefits promised by merger.

And a series of political efforts since the Second World War have sought, with differing degrees of success, to forge a thriving sector from the shards of Europe's steelmaking glory.

The European Union itself is built on the European Coal and Steel Community, established by a 1952 treaty as a means of creating a common market for coal and steel in France, West Germany, Italy, Belgium, the Netherlands, and Luxembourg.

Foreign competition

While this initiative catalysed a rapid upsurge in steel trading within Europe in the 1950s, it failed to see off the threat of foreign competition which grew with the improvement in global transportation and communications services.

The UK government's decision to nationalise the country's 14 biggest producers as British Steel in 1967, and then to increase output, was soon exposed as misguided.

By the 1970s, the then European Economic Commission was attempting to restructure a European steel industry bloated by government support.

Although initial attempts achieved only limited success, further EU action, and the after effects of a privatisation process which pulled foundries from the bosom of state protection, helped achieve a large degree of reform, albeit at the cost of thousands of jobs.

The remaining European steelmakers enter the 21st century with some degree of optimism.

'Nice combination'

Some analysts view the Usinor/Arbed/Aceralia merger as the next and logical step in European consolidation process.

"There is no doubt this is a nice combination," a fund manager at a French bank said.

John Johnson, research manager at CRU International, said: "The deal is amazing. They were all rivals but they culturally fit together well."

The deal will, after all, allow annual savings of 700m euros to be achieved by 2006, the firms believe.

Arbed doubts

Other observers, however, are less certain of the deal's merits.

"It creates the world's largest steelmaker, but will it be the most profitable?," asked Jonathan Ayler, a senior lecturer at the Manchester-based university Umist.

"Large has not necessarily meant more profitable in the steel sector," he told BBC News Online. "Finnish and Swedish steelmakers have been among Europe's best performers, but are not the largest."

While Usinor has reivented itself, with some success, as a steel provider to German as well as French carmakers, and Aceralia is supported by a buoyant domestic market, Arbed has a more troubled outlook, he believes.

"Arbed has no clear focus, has made some questionable acquisitions, and appears to be going nowhere fast except towards financial distress," he said.

"The question is, why would Usinor want to do a deal with Arbed?"

Competition

The desire for closer co-operation stems from a stainless deal agreement the two companies have been discussing since last year, and which has been made all the more important by the takeover of Avesta Sheffield by Finnish mining and metals group Outokumpu.

That takeover created the world's second largest stainless steel producer.

"But why Usinor and Arbed would want to escalate a deal on stainless steel into a full scale merger is less clear," Mr Ayler said.

The Usinor/Arbed/Aceralia merger will, however, allow the firms to address a glut which has put the world's steelmaking capacity outstrip demand by a third, according to some estimates.

"Boy oh boy, will these firms have some overcapacity to deal with," Mr Ayler said.

And it may be the EU's efforts to embrace new markets, rather than rationalise its steel industry, which ultimately proves Arbed's saviour.

"Arbed does own an East German steelmaker, which is well placed to profit if growth in Eastern European economies occurs as many believe," Mr Ayler said.