French Kiss.

Global CEOs vote with their budgets, and their verdict on the United States appears to be a damning one. Last month the United Nations released numbers showing that worldwide foreign direct investment fell 21 percent last year. Money headed for America plunged by 80 percent, knocking it from first to fifth place behind Luxembourg (which is attractive for its tax advantages), China, France and Germany. That same week the French were stirring up buzz about an investor retreat from America. Vivendi Universal had been presiding over a bidding war for its California movie and music business, which it had purchased only three years before. Vivendi inked a deal giving General Electric exclusive rights to negotiate a purchase of the Universal entertainment business. Surely, lurking behind this deal was the acute French pique at George W. Bush's America.

Yet a look beyond the Hollywood glitz reveals that the French are not fleeing America. Vivendi is a company that strayed too far from its core business (utilities), not from the Arc de Triomphe. It still runs the water systems for cities like Indianapolis. Moreover, as data from the U.S. Commerce Department show, French business buys into the American dream. France was the only major country that increased its direct investments in new companies in the United States last year, while investments from Germany, the Netherlands and Switzerland dropped 80 percent.

The macro picture is still too murky for this year, but JP Morgan says that three of the 10 largest European acquisitions in the United States in the second quarter were made by the French, totaling $500 million. America is the top destination of French investment, receiving some 27 percent of the total. "The French are extremely global in their thinking," says Eric Schwalm, manufacturing consultant for Bain & Co. in Boston, who is currently working with several French clients on U.S. expansion. "They understand you are not truly a global enterprise if you are not in the U.S. market."

Investment numbers are a better barometer of the marketplace than political mood. The plunge in new-investment levels is largely a product of the collapse of the M&A boom in the late 1990s, notes the U.N. report. So many megadeals failed to meet the cost savings and other benefits they set out to achieve that CEOs are now wary. With stock markets far below their peaks, all those European CEOs aspiring to buy a chunk of America can no longer readily afford it. The faltering U.S. recovery doesn't help, and JP Morgan managing director Paul Gibbs notes that skepticism about accounting transparency in the United States also weighs on investors' minds. Despite slowing last year, acquisitions still accounted for more than four fifths of all investment into the United States.

The complexity of measuring direct investment makes it easy to reach the wrong conclusions. In addition to M&A, this number includes money spent to start up new companies, and cash flows between the U.S. divisions and central offices of companies headquartered in Europe. When all this was added together, France and the U.K. were the only nations to raise direct investment in the United States last year, while Germany and the Netherlands posted negative numbers.

So is it the Germans and Dutch who are pulling out of the U.S. market? Hardly. The negative investment flow reflects mainly the poor performance of their existing operations. According to Commerce Department data, some ...