Don’t be fooled. Something more than a coordinated effort to contain the current credit and economic crises is going on. That’s why French president Nicolas Sarkozy was so eager to persuade President Bush to convene the international talk shop, to be held in Washington shortly after the election. In fact, Sarkozy wanted the meeting held in New York, where he says all of the trouble originated. Bush nixed that idea, and kept control of the situation by insisting that the foreign dignitaries play on his home court. Under cover of talk about international coordination lies the European Union’s very different view of what the world should look like in the post-recession world. Start with the nostalgic calls for a new Bretton Woods agreement, modeled after the international construction of the financial architecture needed to cope with the reconstruction of Europe after World War II. The principal feature was an agreement to have governments fix exchange rates, currency markets being too wounded by the war to function well enough to set exchange rates that reflected the underlying competitiveness of the world’s economies. In case no one noticed, the War ended over 60 years ago, and the reasons for fixing exchange rates are no more. But France has always preferred to have governments collude to fix rates, so that pressures on it to become competitive by reining in its welfare state and exorbitant labor costs can be eliminated by adjusting the rate at which its currency, once the franc, now the euro, traded. Recall: when it cost about $1.60 to buy one euro, making French wine, cheese, cars and luxury goods expensive in America, Sarkozy called for unified action to bring down the euro.
The French have also always wanted to stifle competition from low-tax jurisdictions, so that it is no surprise that as part of the new world order he has in mind Sarkozy sees an end to such “social competition,” and a closing down of “tax havens.” And lest French capital be unable to compete with foreign capital, he would have a European-wide sovereign wealth fund to buy up firms threatened with takeovers by foreigners. “I will not be the French president who wakes up in six months time to see that French industrial groups have passed into other hands.” Never mind that many European financial institutions are starved for capital, or that France’s energy utility has just bought Britain’s nuclear industry.
Then there is the question of enhancing the powers of the International Monetary Fund, a Sarkozy goal enthusiastically supported by Britain’s Labour prime minister Gordon Brown. Remember, the IMF is the organization that Nobel laureate George Stiglitz has accused of imposing impractical solutions on emerging economies, causing them much pain.
There’s more, but you get the idea. Sarkozy, serving a 6-month term as president of the European Union, sees an opportunity to replace the American model of capitalism with the statism that has produced economic sclerosis, persistent high levels of long-term unemployment, and a rigidity that forces reliance on protectionism, overt and covert, of the sort for which the EU farm policy is a model.
Bush probably had little choice but to convene the international conclave. But he is free to treat Sarkozy & Co. with personal courtesy and professional disdain. If America is to concede control of its financial institutions to international organizations, best to leave that chore to his successor.
Irwin M. Stelzer is a contributing editor to THE WEEKLY STANDARD, director of economic policy studies at the Hudson Institute, and a columnist for the Sunday Times (London).
