French President Nicolas Sarkozy said on Tuesday Europe should have its own sovereign wealth funds to take stakes in companies stricken by the global financial crisis and protect them from "predators".
Sarkozy also vowed the European Union would work to enlist emerging Asian economic giants China and India, themselves potential investors in Europe via wealth funds or corporations, in a summit next month to reform the world's financial system.
"In the world, there are sovereign wealth funds with considerable funds," the French leader told reporters after addressing the European Parliament.
"Should we not think then during this period of crisis about the utility of having sovereign funds ourselves that would make it possible to defend national interests and European interests?"
He dismissed the idea that there was any contradiction in viewing foreign sovereign investment as a threat and European government investment as a potential saviour.
"I am not saying sovereign wealth funds are a threat but we have to defend ourselves," he said.
European sovereign funds could access cheap financing available to governments and sell back industrial stakes in the market at a profit later, he said, as Western governments are now seeking to do with banks.
He recalled he had saved French flagship engineering company Alstom <ALSO.PA> from foreign takeover in 2004 by buying a 20 percent government stake, against the resistance of the European Commission, and selling it off later at a substantial premium.
Commission President Jose Manuel Barroso called the idea of European sovereign funds "extremely interesting" but noted contradictions among member states' attitudes to foreign wealth funds. While Italy was seeking to legislate against such investment, Spain was actively soliciting Arab oil money.
BOLD OR FATAL
Sarkozy and Barroso said they would use an Asia-Europe Meeting (ASEM) in Beijing this week to urge the two fast-growing Asian export powerhouses to join in taking responsibility for stabilising the world economy in the wake of the credit crisis.
He said they should attend a planned series of summits to discuss strengthening financial institutions and improving cross-border regulation to avoid a repeat of the turmoil that has toppled banks and driven economies towards recession.
"We are facing the worst at the moment, and if we are not bold, it will be fatal," Sarkozy told EU lawmakers, reporting on the results of last week's EU summit and talks with U.S. President George W. Bush at Camp David last Saturday.
He said the summit should comprise the Group of Eight industrial powers — the United States, Japan, Germany, France, Britain, Italy, Canada and Russia — plus five major emerging economies — China, India, Brazil, South Africa and Mexico.
China, believed to hold as much as $1 trillion in U.S. Treasury bonds, has not commented on whether it would attend. The Bank of China joined Western central banks in a concerted interest rate cut on Oct. 8 designed to restore confidence.
India has been seeking a larger role in global financial leadership but has not said anything about attending a summit.
EU officials said the Asian countries' attendance may depend on their being assured of full participation rather than a second-fiddle role attending an enlarged meeting after the main event, as has happened at recent G8 summits.
Sarkozy said he would hold an emergency summit of EU leaders soon to prepare for that meeting, expected to be held in New York shortly after the Nov. 4 U.S. presidential election.
PRINCIPLES
Speaking hours after France became the latest country to announce an emergency state capital injection in its main banks, Sarkozy set out a series of broad principles he said the global summit should adopt:
– no bank that works with state money should be able to work with tax havens;
– no financial institution should be allowed to work without being covered by financial regulation;
– remuneration packages for traders in financial markets should be calculated to encourage responsible behaviour and not excessive risk-taking;
– international accounting rules should be adapted to enable banks to survive the financial crisis;
– the international monetary system should be rethought to find a path between fixed and free-floating exchange rates among major currencies;
– the rest of the world cannot continue to finance U.S. deficits without having a voice in the global financial system.
Sarkozy also advocated regular summits of leaders of the 15 nations that share the euro currency to provide what he called an economic government for Europe that would work in partnership with the independent European Central Bank.
Euro zone leaders held their first summit in Paris on Oct. 12 in response to the crisis. Several members, notably Germany and the Netherlands, previously opposed such summits as divisive and a potential interference in the ECB's independence.
The French leader said Europe needed a pro-active industrial policy to promote growth and the EU should respond jointly to a distortion of competition caused by U.S. cheap state loans to the auto industry to produce cleaner cars.
