By James G. Neuger
Oct. 24 (Bloomberg) -- Since the era of Charles de Gaulle, France has rebelled against the American-style capitalism that put a ``Made in U.S.A.'' stamp on the world economy.
Now, as convulsions on Wall Street shake the global financial system, French President Nicolas Sarkozy is seizing the opportunity to remake the free-enterprise model along more state-managed Gaullist lines.
Emboldened by the U.S. pursuit of a European-style bailout, Sarkozy has packed his wish list for an upcoming international summit with calls for everything from stiffer bank supervision and limits on executive pay to state aid for hand-picked industries. While the moment is in his favor, history is working against him: throughout the postwar era, French attempts to subdue globalization and come up with an exportable economic model have misfired.
``There will be so much opposition against this grand idea of putting in more state control,'' says Paul de Grauwe, a professor at the Catholic University of Leuven in Belgium. Sarkozy is chasing ``a kind of French favorite dream that others do not perceive to be really necessary.''
As the financial crisis spiraled in early October, Sarkozy made a pilgrimage to De Gaulle's onetime country hideaway in eastern France, dedicating a memorial in the shadow of a double- barred Cross of Lorraine honoring the Free French in World War II. A prickly ally during the war, De Gaulle made a postwar reputation for defying the U.S.
`Mysterious Force'
``Gaullism is the spirit of rupture,'' Sarkozy said at the Oct. 11 ceremony attended by German Chancellor Angela Merkel. The general's legacy is a ``mysterious force,'' he said. It breaks with ``habits, routines, conventions,'' demanding ``exertion by all so that France may regain its rank among nations.''
The nominally pro-American Sarkozy, who ran as a pro- business candidate last year against Socialist Segolene Royal, is taking his crusade for a ``re-founding of global capitalism'' to Beijing today, when European leaders meet with the heads of 16 Asian countries including China, India and Japan. His next chance comes at the first in a series of global summits addressing financial markets slated for Nov. 15 in the Washington area.
``Nothing in the global economy will be the same as before,'' Sarkozy said yesterday in Annecy, France, as he announced plans to create a sovereign wealth fund to invest in French companies, protecting them from foreign ``predators'' after the global stock market rout.
Sarkozy's Presidency
The crisis struck during Sarkozy's six-month term as European Union president, enabling him to marshal the EU's response and festoon it with ideas that, until recently, few outside France embraced.
The first European convert was U.K. Prime Minister Gordon Brown, up until now the EU's most forceful free-marketeer. Brown's partial nationalization of the British banking system, praised by Sarkozy, unleashed an EU-wide move to pony up at least 2 trillion euros ($2.6 trillion) in capital and loan guarantees for banks.
U.S. Treasury Secretary Henry Paulson subsequently decided to take $250 billion of equity stakes in U.S. lenders, though his $700 billion rescue package was initially intended to buy their bad debt.
Sarkozy's proposed ``toolkit'' would broaden the International Monetary Fund's mandate and set up a new system to manage the dollar, euro, yen and emerging-market currencies --an impossibly broad agenda that has gotten little traction in Europe and even less in the U.S.
``We need some significant changes but we also need to do it in a way in which we don't throw out the baby with the bathwater,'' Paulson told PBS television's Charlie Rose Oct. 21.
EU Summit
EU leaders endorsed none of the specifics at a Sarkozy- chaired summit on Oct. 16, issuing a general plea for ``transparency, global standards of regulation, cross-border supervision and crisis management.''
Sarkozy's Union for a Popular Movement descends from De Gaulle's own party. True to De Gaulle's vision of a Europe run by national capitals, he has given the bloc's central authorities only a bit part in the crisis. An EU-wide financial regulator is far off, unwanted by Sarkozy, Brown and others.
``I don't understand the call for global regulation, given Europe has to get its own regional house in order,'' said Simon Johnson, a former IMF chief economist who teaches at the Massachusetts Institute of Technology. ``Europe has fragmented regulation and no cross-border management in place, yet it talks about a global program.''
Old Tensions
Official French antagonism to global speculative capitalism is sometimes difficult to disentangle from a standoffish attitude toward the U.S., the country that invented it.
De Gaulle spent a decade chafing at the dollar-based post- World War II monetary system, complaining in 1965 that it gave American businesses an unfair edge by allowing them ``to take out foreign debt at no cost.''
De Gaulle's mantra, uttered in 1968, that ``capitalism doesn't offer a satisfying solution from a human perspective'' echoes down into policies offered by successors from both ends of the political spectrum.
Francois Mitterrand, a Socialist elected in 1981, embarked on a budget-busting campaign of nationalizations that a sagging currency and soaring interest rates forced him to reverse two years later. Jacques Chirac, Mitterrand's center-right successor, unsuccessfully pushed to devalue the French franc against the German mark -- a policy that would have kept France out of the euro.
`Capitalism of Entrepreneurs'
While tipping his hat to a ``capitalism of entrepreneurs,'' Sarkozy reads from a similar script, with a preference for more state intervention in the economy, a weaker euro, greater political influence over the European Central Bank and greater freedom to subsidize industries.
The French model has failed to deliver growth that keeps up with its European peers. Economic expansion in France, estimated on Sept. 10 by the European Commission at 1 percent in 2008, will lag behind the rate in the euro region for a third year. Unemployment, at 8 percent in August, is the second-highest among the 15 nations that share the currency after Spain. Debt rose to 64.2 percent of gross domestic product in 2007 from 58.9 percent when the euro debuted in 1999.
Sarkozy is promoting ``a French statist approach toward society,'' says Charles Calomiris, a Columbia University professor in New York who was on a U.S. congressional commission that studied the global financial system in 2000. The result would be an ``extremely damaging Frenchification'' of the world economy.
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