TOULON - President Nicolas Sarkozy attacked the world's capitalist system on Thursday, saying it needed to be overhauled and promised to protect the French economy from the fallout.
In a keynote speech on the market mayhem, Sarkozy said France was in recession and the crisis would weigh on the economy for months to come, but promised that the state would step in to protect bank deposits if necessary.
He also urged the European Union to revise its economic model and rethink its monetary policy goals.
"I am convinced that the problem is a deep-seated one and we need to rebuild the whole world financial and monetary system from scratch," Sarkozy told some 4,000 supporters at a rally in southern France.
"The idea of the absolute power of the markets that should not be constrained by any rule, by any political intervention, was a mad idea. The idea that markets are always right was a mad idea," he said.
He repeated his call for major power leaders to meet before the end of the year to map out a new financial system and said it was vital to review currency levels, adding that both the dollar and Chinese yuan were undervalued.
"We cannot continue to manage the economy of the 21st century with the instruments of the economy of the 20th century," he said.
He also warned bankers and business leaders to curb their salary levels, saying the government would introduce legislation by the end of the year if they failed to reform themselves.
He said Europe needed to rework its institutions to make them strong enough to deal with the sort of crisis that threw Wall Street banks into disarray this month.
"It must reflect collectively on its doctrine of competition...on the instruments of its economic policy, on the objectives assigned to its monetary policy," Sarkozy said.
He said he would make proposals for how this could be done at next month's European Union summit.
The French economy contracted 0.3 percent in the second quarter and recent data has been dismal, sparking fears of a recession, described as two quarters of negative growth.
Business confidence has plummeted and the manufacturing sector suffered its sharpest contraction in over six and a half years this month. Unemployment is expected to rise and households have been squeezed by rising prices.
Sarkozy said the economy was already in recession and promised he would not raise taxes to bolster state coffers.
"In the current economic climate I will not introduce an austerity plan which will worsen the recession," he said.
He said he would not raise charges on companies and if the economy slowed further would take necessary steps to support it.
Sarkozy's speech came ahead of his government's unveiling of the 2009 budget on Friday.
The slowdown in growth has led to lower tax receipts and the government is not expected to include many new measures to help consumers and stimulate growth.
However, the French president said he would pursue his reform programme despite the financial turmoil, reforming the labour market, cutting the public sector workforce and speeding up the introduction of new generation nuclear power stations.
"The crisis calls for an acceleration of the rhythm of reforms not a slowdown," he said.