euinside

Cause and Effect in European Politics and Law

Sarkozy: Reasonable regulation and adaption of the world order

Adelina Marini, 28 January 2011

On the second day of the Annual Meeting of the World Economic Forum in Davos Nicolas Sarkozy, President of France, had a special address. He is this year presiding two important organisations - the G8 and the G20. What was impressive in his statement was that he spoke without reading from notes, he was brief and clear and he quickly gave the audience the chance to ask questions. And another important thing - his speech astonishingly reminded some of the key moments in Russia's President Dmitry Medvedev's speech a day earlier.

End the 20-th century thinking

As Medvedev explained, the new world needed new ideas in order to tackle the numerous challenges, Nicolas Sarkozy too stated that "we have to refrain from misunderstanding and ideological disputes. I would even go as far as to say that we have to refrain from reactions based on the 20th century thinking". Mr Sarkozy said this in the context of the problems, which in his words were so complex and difficult, and many, it was impossible any country in the world to even think to handle them alone. This was why the French leader emphasized on the G20 as a major forum to solve global issues and to coordinate.

But he warned: "The G20 legitimacy depends exclusively on its capability to take decisions". And probably in his capacity of a chairman, although since recently, of this young organisation, Sarkozy is already well aware how true his observation is. By the way, the issue was discussed in detail in another debate in Davos, moderated by the BBC World News presenter Nick Gowing with the participation of the French Minister of Finance, Christine Lagarde.

While the main participants in the discussion debated on China's and India's development, in the audience was the Polish foreign minister Radek Sikorsky, who asked for the floor and said that the biggest problem of global organisations was that they were difficult in taking decisions. Something with which Christine Lagarde agreed, by adding that every decision taken on a G20 level then had to be approved by the American Congress, the EU member states, in a nutshell - by the parliaments of the G20 members (wherever this is necessary).

The main problems Nicolas Sarkozy outlined for the world this year were sovereign debt, currency imbalances (which have increased fivefold in the last few years), the risk of inflation and the jump of commodity prices.

The world is different, face it!

In a nutshell this was the main message, conveyed by the French leader who explained that we had entered the 21st century 11 years ago, but we were still functioning according to the 20th century rules. According to him, it is not normal countries from Africa that represent almost 2 bn of the population of the world not to have a permanent seat in the UN Security Council, together with China, India, Brazil, South Africa or Mexico. The financial system does not respond to the present too - "The building of Bretton Woods after the World War II took a year. Who will dare now to stand up in this hall and say that in 2011 the world has anything to do with 1945?"

And having said that Sarkozy rushed to comfort the United States that with the insistence to reform of the currency system no one wanted to weaken the dollar, which continued to be a leading currency that everyone needed. 61% of world currency reserves were in dollars, 82 per cent of trade was in dollars, Sarkozy added and warned that this did not mean that the dollar sould remain the only and dominating currency. The only forum since 1975 that dealt with such problems was the G20.

"Since 1990 the world went through 42 crises of capital flows, meaning that many countries saw how capital flew out the window. Is it nothing that we will do on the matter? In order to deal with such risks in the future, many of the countries that suffered then had piled huge reserves", the French leader said probably having in mind, without naming them, China and Japan, who possess the biggest currency reserves in the world and suffered heavily during the Asian crisis in 1997.

Do understand, the euro will never be abandoned!

It was exactly how Sarkozy assured the public that it was too early the single currency to be pronounced dead. "We will never turn our backs to the euro, listen to me carefully - never!" He went on by explaining that the word euro actually meant Europe. Europe which is in peace for 60 years now and "we will never allow the euro to be destroyed". In the meantime, however, he pointed out that decisions were being taken difficulty in the euro area, where 17 sovereign states had to agree. This is why Sarkozy envied Barack Obama because he had to convince only the Congress to approve his decisions.

The French president did not spare mentioning his visions about the necessity of regulation, reaching farther than the financial sector - to the food sector. Without getting into details he touched his favourite issue of the Common Agricultural Policy of the EU by saying that, given the speed of increasing of the world's population, by 2050 it would be necessary agricultural production to be increased by 70% in order to be sufficient to feed this population. And when commodity prices (food and raw materials) increase without a reason only in a few weeks, then comes the question "Why would you accept regulation of the secondary financial markets and not on commodity prices?"

According to Sarkozy, regulation meant transparency, but reasonable regulation - such that would allow the market place to function normally. He defended his position about the introduction of a tax on financial transactions by recalling that in Copenhagen more than a year ago, the developed countries promised the poor ones over 100 bn euro for the next three years in order to help them adapt to climate change. Currently, however, there is no developed country that can afford taking so much money out of the treasury. This is why the only way to stick to that promise, was taxing financial transactions.