ANNECY, October 23 – President Nicolas Sarkozy announced the creation of a sovereign wealth fund on Thursday, promising to protect the strategic heights of the French economy from the global financial storm.
Declaring that the recent economic turmoil had killed off the "dictatorship of the market", Sarkozy vowed to lead Europe towards a model in which the state will take much more active role in industrial investment.
"A better world will emerge from this crisis than the one we had before," he said, adding that the fund would "intervene massively" in order to protect any strategically important firms threatened by the global credit crunch.
"What oil producers do, what China does, what Russia does, there\’s no reason that France should not do, in the service of an industrial policy worthy of the name," he said, vowing to promote innovation an capital investment.
The importance of sovereign wealth funds has grown in recent years as the governments of energy exporters such as Russia the Gulf monarchies have used their huge reserves to buy stakes in Western firms.
Leaders of long-established capitalist economies in the West have been suspicious of their growth, preferring to see private capital take the lead and concerned at seeing prize industrial assets falling under foreign influence.
"It\’s not about shoring up failing businesses, but stabilising the capital of firms with knowledge and key technologies that could fall victim to predators seeking to exploit a momentary market undervaluation," Sarkozy said.
The creation of the fund would not increase public debt, he insisted, since the state would hold shares in the firms concerned and would be able to sell them later at a profit, once the financial crisis has passed.
"I will ask parliament to adopt these measures extremely rapidly," he told business leaders meeting in Annecy, a lakeside town in the mountains of eastern France, adding that he hoped that the fund would be operational by the end of the year.
According to a report in the daily Le Figaro citing presidential aides, the new 200-billion-euro (256-billion-dollar) fund will be created by merging existing state intervention funds and stakes in public enterprises.
Sarkozy said it would be a "public intervention fund which will intervene massively every time a strategic enterprise needs equity capital," and promised to encourage other European governments to adopt the same policy.
France\’s budget priority would henceforth be to support innovation and investment, he said, vowing that over the next three years the state would spend 175 billion euros in direct economic investment.
He also announced a moratorium until January 2010 on a 3.5 percent local business tax on new investments and the creation of the post of a "credit mediator" to oversee talks between struggling firms and nervous lenders.
French banks, in exchange for a 260-billion-euro package of state funding and loan guarantees, have promised to increase their lending to private firms.
Sarkozy\’s latest measures come as France has attempted to take the lead in Europe in meeting the challenge of the global financial crisis triggered by the collapse in the US domestic mortgage market.
Leaders of the G20 group of the world\’s biggest economies are to meet next month in Washington to, in Sarkozy\’s phrase, "refound the global financial system."
"This is an intellectual and moral revolution that is happening," he said.