Sarkozy's economic axis of evil

Nicolas Sarkozy, France’s president and potentate, has identified an economic axis of evil behind the current financial turmoil. Along with the usual gang of suspects (speculators and hedge funds) is the foreign Sovereign Wealth Fund.

There’s nothing like a good global financial crisis to stoke the populist instincts of a politician under fire for his economic stewardship at home.

 

Nicolas Sarkozy, France’s globe-trotting president-cum-potentate (and I mean that in strict dictionary definition of the term as “one who wields great power or sway), has identified what we might term his own “economic axis of evil” behind the current turmoil.

 

Paramount in Sarkozy’s pantheon of financial evildoers is a hodge-podge of characters we’ve heard a lot about lately: those hell-bent hedge fund managers, scheming speculators, tricky tax dodgers and craven credit-rating agencies.

 

In Sarkozy’s world view, these are the dregs of the financial world, the capitalist kin to the immigrant “racaille”, or scum, that the French president famously belittled during a now notorious visit to a Parisian suburb before he became president.

 

But the threat doesn’t end there.

 

One notch down on the echelon of evil is the sovereign wealth fund. Those are the investment vehicles created by energy and cash-rich states in Asia and the Middle East. They are estimated to have some $2.5 trillion dollars on tap for investment – money that some in the West fear will be used to buy up stakes in strategic foreign industries, along with the influence that comes with such participation.

 

We’ve heard a lot about these sovereign wealth funds recently – including major endowments in Russia, China,  Kuwait and Abu Dhabi. That’s because they’ve played the role of bogeyman and banker to developed countries in distress throughout the subprime crisis. Even as they were denounced in some quarters as foreign agents of corporate subversion, others – including the biggest bank in the US, Citigroup – have embraced them as welcome sources of capital in straitened times.

 

A European wealth fund?

Sarkozy insists that Europe must find a united industrial response to the financial crisis. Stripped to its basics, that means he wants to protect European industry from the wiles and guiles of sovereign wealth “predators”. He points out that key European companies have lost a third or more of their value in the market swoon of the past six months. His fear is that the satraps of sovereign wealth will snatch up Europe’s corporate patrimony at bargain-basement rates.

 

“I don’t want European citizens to wake up in several months time and find that European companies belong to non-European capital, which bought at the share price’s lowest point,” Sarkozy warned European lawmakers on Tuesday at the parliament in Strasbourg.

 

So what’s his proposed solution? To seek ways to limit sovereign wealth’s shareholding in European companies, as Italy is considering, and Germany has pondered?

 

No, Sarkozy proposes to go much further. Adopting a sort of “if-you-can’t-beat-them-join-them” logic, he wants to create sovereign wealth funds for Europe. Such funds -- set up by each country, according to its means -- could provide what he sees as a bulwark against foreign encroachment in European board rooms.

 

EU leaders not warming to Sarkozy's ideas

 

The problem here, of course, lies in the proposed solution. Europe does not exist to protect itself against the free movement of capital across borders, but to encourage it. Those who oppose Sarkozy's idea believe state intervention in national enterprise should be a last resort.

 

Among the staunch opponents to Sarkozy’s idea is Germany. As I’ve already noted, it has sought to limit sovereign wealth participation in banking and finance. But it draws the line at creating a European wealth fund.

 

Germany's economics minister, Michael Glos, told the Allgemeine Zeitung newspaper that such a policy "contradicts all the successful principles of our economic policy." He says Germany remains open to capital from all over the world.

 

The Czechs also oppose Sarkozy. President Vaclav Klaus calls it "old socialism". The Brits are dubious as well. They regard a European wealth fund as a blatant end run around European rules regulating the amount of state aid national companies can receive. They fear it could distort competition.

 

Spain, according to the International Herald Tribune, is actively seeking sovereign wealth investment from the Arab world.

 

The only one who has cautiously welcomed the idea is the European Commission’s president, Jose Manuel Barrosso. He says: "I am not, in principle, against sovereign wealth funds." Hardly a ringing endorsement.