Sarkozy Wants To Clip Banks' Wings
Friday, January 29, 2010
French President Nicolas Sarkozy has told a meeting of the World Economic Forum
(WEF) in Davos that fundamental changes to global capitalism are needed if a
repeat of the financial crisis is to be avoided, including new rules to stop
banks and their hedge funds from "speculating," and an end to freely-floating
currency regimes.
In his opening address at the WEF Annual Meeting, Sarkozy said that it will
not be possible to emerge from the global economic crisis and protect against
future crises if the economic imbalances that he argues that are at the root
of the problem are not addressed.
“This is not a crisis in globalization; this is a crisis of globalization,”
he said. “Finance, free trade and competition are only means and not ends
in themselves.”
Sarkozy said that he agreed with new restrictions on the size and scope of
financial institutions announced by US President Barack Obama earlier this month
to rein in "excesses" by financial institutions, protect taxpayers
and usher in greater stability in the financial system.
Sarkozy added that banks should stick to analyzing credit risk, assessing the
capacity of borrowers to repay loans and finance economic growth. “The
role of the bank is not to speculate,” he remarked. “President Obama
is right when he says that banks must be dissuaded from engaging in proprietary
speculation or financing speculative funds."
He also questioned the rewarding of high compensation and bonuses for CEOs
whose companies lose money. Capitalism should not be replaced but it has to
be changed, the French president declared. “We will only save capitalism
by reforming it, by making it more moral.”
However, the French President suggested that such reforms could only be truly
effective if brought in at a global level. "If competition is skewed by
prudential rules that remain very different from one country to another, if
we cannot coordinate our efforts, how can we be surprised that so many players
consider it normal to return to the habits they had before the crisis?"
he asked.
Obama has proposed to work with the US Congress to pass legislation that would
prevent a bank or financial institution that contains a bank to own, invest
in or sponsor a hedge fund or a private equity fund, or proprietary trading
operations unrelated to serving customers for its own profit.
The world’s currency regime is central to the issue, Sarkozy contended
as he called for a new 'Bretton Woods' system. He said that exchange rate instability
and the under-valuation of certain currencies lead to unfair trade and competition.
“The prosperity of the post-war era owed a great deal to Bretton Woods,
to its rules and its institutions. That is exactly what we need today; we need
a new Bretton Woods.”
The Bretton Woods system compelled countries to maintain their exchange rates
within a fixed value according to the price of gold in the years following the
end of World War Two. The system collapsed after the US unilaterally pulled
out of the regime in 1971.
Sarkozy said that France would place the reform of the international monetary
system on the agenda when it chairs the G8 and G20 next year.
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