Sarkozy wants Europe sovereign fund to fight crisis

By Huw Jones

STRASBOURG, France (Reuters) - French President Nicolas Sarkozy said on Tuesday Europe should have its own sovereign wealth funds to take stakes in companies stricken by the global financial crisis and protect them from "predators."

Sarkozy also vowed the European Union would work to enlist emerging Asian economic giants China and India, themselves potential investors in Europe via wealth funds or corporations, in a summit next month to reform the world's financial system.

"In the world, there are sovereign wealth funds with considerable funds," the French leader told reporters after addressing the European Parliament.

"Should we not think then during this period of crisis about the utility of having sovereign funds ourselves that would make it possible to defend national interests and European interests?"

He dismissed the idea that there was any contradiction in viewing foreign sovereign investment as a threat and European government investment as a potential saviour.

"I am not saying sovereign wealth funds are a threat but we have to defend ourselves," he said.

European sovereign funds could access cheap financing available to governments and sell back industrial stakes in the market at a profit later, he said, as Western governments are now seeking to do with banks.

He recalled he had saved French flagship engineering company Alstom (ALSO.PA) from foreign takeover in 2004 by buying a 20 percent government stake, against the resistance of the European Commission, and selling it off later at a substantial premium.

Commission President Jose Manuel Barroso called the idea of European sovereign funds "extremely interesting" but noted contradictions among member states' attitudes to foreign wealth funds. While Italy was seeking to legislate against such investment, Spain was actively soliciting Arab oil money.

BOLD OR FATAL

Sarkozy and Barroso said they would use an Asia-Europe Meeting (ASEM) in Beijing this week to urge the two fast-growing Asian export powerhouses to join in taking responsibility for stabilizing the world economy in the wake of the credit crisis.

He said they should attend a planned series of summits to discuss strengthening financial institutions and improving cross-border regulation to avoid a repeat of the turmoil that has toppled banks and driven economies toward recession.

"We are facing the worst at the moment, and if we are not bold, it will be fatal," Sarkozy told EU lawmakers, reporting on the results of last week's EU summit and talks with U.S. President George W. Bush at Camp David last Saturday.

He said the summit should comprise the Group of Eight industrial powers -- the United States, Japan, Germany, France, Britain, Italy, Canada and Russia -- plus five major emerging economies -- China, India, Brazil, South Africa and Mexico.

China, believed to hold as much as $1 trillion in U.S. Treasury bonds, has not commented on whether it would attend. The Bank of China joined Western central banks in a concerted interest rate cut on October 8 designed to restore confidence.