The World Economy According to France's Sarkozy

Never underestimate the ability of the French to punch above their weight in international diplomacy. Despite waging an unwinnable battle over keeping French language's place in diplomatic conduct, such diversions do not really detract from Les Blues making their presence felt in other, more meaningful arenas. Indeed, I am surprised by how far the global agenda has been influenced by France including the crackdown on tax havens and bank regulation at the EU, among other things. Now, we have news of the mighty Sarkozy and his Finance Minister Christine Lagarde calling for the overhaul of the entire edifice (yes, what else is new?) in forthcoming G20 meetings.

Having a long memory, this is very much of a piece with Legarde lecturing the wayward United Kingdom over resorting to the time-tested practice of devaluation to enhance export competitiveness. (Not that it's done much good, but I digress.) The implicit idea being that being wedded to the Bundesbank's successor no longer allows France to do the same. Apparently, this still rankles--especially when certain others display blithe unconcern with external deficits that tend to induce currency weakness:

French President Nicolas Sarkozy said Thursday he will propose an overhaul of the global monetary system by the end of the year, in an attempt to stave off the loss of industrial competitiveness coming from foreign-exchange imbalances. "If the U.S. dollar loses 50% of its value to the euro, how can it be possible to make up the loss of competitiveness?" Mr. Sarkozy asked workers in a Eurocopter plant in Marignance, close to the southern port town of Marseilles. "At the G-20 by the end of the year, I will try to organize a new international monetary system," he said. "We can't go on like this."

Despite a recent fall in the value of the euro, France is persisting in talking hard on currencies. In January, Mr. Sarkozy called on the Group of 20 industrialized and developing economies to turn its focus to monetary and foreign exchange imbalances, having concentrated its efforts on pumping billions into the economies to stave off the global recession.

Finance Minister Christine Lagarde said Thursday foreign-exchange volatility is causing great damage to European industry, and that going back to stable foreign-exchange rates is imperative. "What is unbearable for industries in France and elsewhere in Europe is a very high volatility in very short time spans," Ms. Lagarde said in an exclusive interview in Marignane, where she was accompanying Mr. Sarkozy. "We can't continue to make the economy work with so much volatility, we must imperatively bring stability back."

The French industrial sector is faced with mounting troubles, many stemming from increased global competition, a lack of adequate specialization and the small size of companies. Problems at the plant level, exacerbated by the economic slump, are now making themselves felt in the labor market, with unemployment reaching a decade peak of 10% in the last three months of 2009, according to government figures published earlier Thursday.

A report written by an industry commission for Mr. Sarkozy shows that industry accounts for a shrinking proportion of jobs in the wider economy, at 21% of the total in 2009 compared with 25% in 2000. Over half a million industry jobs were lost in the past decade, to a low of 3.365 million in September.

I am not entirely sure what Sarkozy will propose in the next few months. Again, however, don't underestimate what the French can do. Certainly, if they really want to force the issue, then there's always the Chinese to join up with in confronting the US/UK bully boys.