Sarkozy sees role for G7 in market woes

From the FT today:

Sarkozy sees role for G7 in market woes

By Peggy Hollinger in Paris and Bertrand Benoit in Berlin

Published: August 16 2007 20:59 | Last updated: August 16 2007 20:59

Nicolas Sarkozy, the French president, on Thursday waded into the subprime mortgage crisis that has thrown global markets into turmoil, with a call for G7 governments to work with central banks and the International Monetary Fund to improve financial transparency.

In a letter to Angela Merkel, the German chancellor and acting president of the group of eight industrialised nations, which includes the G7, Mr Sarkozy highlighted his concerns over the weaknesses of the international financial system revealed by the present crisis.

He called for G7 finance ministers to draw up proposals for their meeting in Washington in October to address transparency and risk awareness among market participants and regulators.

He said the G7 should join the European Commission in investigating the role played by credit ratings agencies in the crisis, and said that bank involvement in credit markets should also be addressed.

“I believe it is essential that as heads of state we should draw the consequences and lessons of the events that are affecting the markets,” he said.

Mr Sarkozy’s call – issued from the shores of Lake Winnipesaukee in New Hampshire, where he was enjoying the last day of his holiday – takes a step further Germany’s long campaign to impose greater transparency on hedge funds and private equity groups.

Ms Merkel has made financial market transparency the keynote of her presidency of the G8, although German efforts to promote a code of conduct for the hedge fund industry at the summit in Heiligendamm in June were stymied by US and UK opposition.

Berlin on Thursday welcomed Mr Sarkozy’s intervention, while at the same time revealing a hint of irritation at the French president’s propensity to steal the limelight with a well-timed statement.

“The issue was extensively discussed at Heiligendamm,” a spokesman said. “The chancellor made it clear this discussion must be pursued.”

The European Central Bank would also welcome a reopening of the debate on hedge fund transparency, having warned about the risks well before the latest financial market turmoil.

Mr Sarkozy sought to calm jitters, saying he believed there would be no lasting impact on economic growth.

He praised the contribution of credit markets to economic dynamism but said their evolution had created significant areas of uncertainties.