Sarkozy: Globalization Got Out of Control

French President Nicolas Sarkozy delivered an impassioned call for coordinated efforts to regulate the global financial system in a keynote speech here that comes as countries try to breathe renewed momentum into stalled efforts to design new rules for the banking sector.

In his speech before the world’s political and economic elite gathered at the World Economic Forum, the French president also criticized countries that deliberately undervalue their currencies, saying it could lead to a protectionist backlash.

“This was not just a global crisis, but a crisis in and of globalization,” Mr. Sarkozy said before a packed audience. “We will only save capitalism by refounding it, by making it more moral.”

International financial officials are hoping that last week’s moves by U.S. President Barack Obama to curb the size and spread of Europe’s largest banks will revive international efforts to design a new set of rules for the financial sector.

So far, leaders from the Group of 20 club of the world’s top economies have agreed to new international guidelines to curb compensation packages and limit risky behavior at banks across the globe. Since then, however, there has been concern that countries are tending toward more unilateral actions—particularly on controversial issues such as how much capital banks should be required to hold in case of another crisis.

Mr. Sarkozy said he supported President Obama’s plans, but he said the G-20 was the right forum to reach coordinated financial regulation.

“How can we conceive that in a competitive world, we can insist that European banks have three times more capital to cover the risks of their market activities, without demanding the same of American and Asian banks?” Mr. Sarkozy said.

Mr. Sarkozy also reiterated that France would put its quest for a new global monetary order at the center of its agenda during the country’s chairmanship of the Group of Eight next year.

The undervaluation of “certain currencies…militates against fair trade, against competition.” Mr. Sarkozy said. “We will not allow monetary dumping.”

European officials have tried to lobby China to let its currency appreciate more quickly, fearing that artificially cheap Chinese goods are taking market share from European companies.

Those concerns have lessened somewhat in recent weeks, as the euro has dropped significantly against the dollar, due to concerns over ballooning government debts in the euro zone.

“I think he was right to warn the Chinese over their currency in blunt terms,” said Charles Grant, director of the Center for European Reform, a London-based think tank, after the speech.

Mr. Sarkozy’s blunt rhetoric hasn’t always been followed by concrete actions, however.

When the global financial crisis struck, Mr. Sarkozy was among the first leaders to call for tougher regulation of the banking industry, and he has repeatedly voiced concerns that pay scandals would fuel voter resentment.

In practice, however, Mr. Sarkozy has acted with a softer hand. He shelved his own proposal aimed at capping bonuses in absolute terms saying that France couldn’t introduce such measure unless the U.S., the U.K. and other large financial centers followed.

His administration has rejected a proposal put forth by opposition Socialist lawmakers last year, and calling for a special tax on bank profit.

Mr. Sarkozy’s cabinet argued that it would put French banks at a competitive disadvantage.