France/World financial crisis

Sarkozy to create sovereign fund to bolster economy

Article published on the 2008-10-23 Latest update 2008-10-23 14:56 TU

Sarkozy speaks
(Photo: Reuters)

France's president has announced the creation of a sovereign wealth fund to support French companies. The announcement drew immediate criticism from Germany, which warned that the move went against EU market rules. Sarkozy made the announcement in a speech in Annecy, southern France, on Thursday, where he met with local entrepreneurs.

The government-backed fund will invest in industries considered to be of strategic importance for the country.

In his speech, Sarkozy announced that the financial crisis had ended the "dictatorship of the market", and said that he would lead Europe towards a model which involved increased state industrial investment. 

He announced that the fund would "intervene massively" were any national industries threatened by the crisis. The credit crunch has sparked fears that tumbling share prices could leave important industries open to takeovers by foreign investors.

But German government spokesman Ulrich Wilhelm responded that any protectionist measures must be consistent with EU regulations. "[Germany] is … convinced that measures to protect against foreign takeovers must be compatible with internal market rules," he said.

Sarkozy insisted that the fund was not French protectionism.

"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," he said.

 

Western economies have long been suspicious of sovereign wealth funds, which have been increasing in importance in recent years. The funds are drawn from trade and budget surplus funds, which governments generally use to invest in industries which benefit countries and their citizens.

 

Countries with large oil and gas reserves, such as Russia and the Gulf states, have used the funds to buy up foreign companies.

 

The president said that he hoped France's fund would be up and running by the end of the year.

 

In his speech, Sarkozy also announced a moratorium until January 2010 on a 3.5 per cent local business tax on new investments and the creation of the post of a "credit mediator" to oversee talks between firms and lenders.