European Affairs

On these issues, the G-20 can probably do little but try to find a general framework of long-term goals that can prevent the clashes from escalating. In that sense, the timing of the G-20 seems useful. The timing is more than just useful--it is excellent--for Mr. Sarkozy because it enables him to move center stage into the international economic limelight.  (Sarkozy will also head the G-8, the old forum of leading industrial nations that is ceding its global coordination role to the more encompassing G-20).  The French leader will have a platform to move his political agenda on three fronts: the global stage, the European context and the French domestic scene. For Mr. Sarkozy, coming off his success in pushing through a bruising retirement-age reform in France, it is an opportunity to gain new momentum ahead of his re-election campaign in France in 2012. With his opportunity for three-tier leadership (global, European and national), he can hope to see success at each level.  International stature will consolidate the French leader’s recent successful teamwork with Germany at the EU level. The process will give momentum, hopefully to be celebrated at next year's G-20 summit, just six months from the French presidential election in May 2012.

As a convener and host for the G-20, Mr. Sarkozy will command an audience for his ideas about global financial reform – ideas that are often set to meet opposition from other quarters but which will resonate well in Europe and especially in France.

France has laid the groundwork well. Mr. Sarkozy has just held a very successful meeting with China’s leader, President Hu Jintao.  Their summit, which produced a bonanza in export deals for France, also produced hints from China that it will be a cooperative voice at the G-20 summit: French officials say that Beijing will be forthcoming, verbally at least, about the broad idea of maintaining some degree of balance in global trade. And it will also agree with French insistence that the world must move away from having the U.S. dollar as the only reserve currency.

The trade and currency issues have been a central theme of the Obama administration, and now it is France that is bringing word of some progress with Beijing. Using a third party to hint a policy nuances is a comfortable approach for China (which reportedly was instrumental in the designation of the French leader to head the G-20 for this term).

Interestingly, there has been a diplomatic ballet in recent weeks as Mr. Obama has been in India (also scoring big trade deals) and promoting the world’s most populous democracy for a permanent seat on the UN Security Council – while Mr. Sarkozy has engaged in his own high-profile performance with China. This teamwork has advantages for both France and China in diluting recurrent perceptions by some that the world sometimes seems to function as a “G-2” comprising of Washington and Beijing. (That was an impression left by the dismal outcome of the climate change conference this year in Copenhagen.)  Many recent multilateral meetings have suffered a similar fate – producing little change or prospect of change – in the midst of a crisis that afflicts most Western nations with joblessness (or the fear of it) and rising protectionist pressures and the growth of populist extremism that threatens Western leaders such as Mr. Sarkozy and Mr. Obama.

The G-20, while still in its proving stages, offers an opportunity for Mr. Sarkozy to show himself as a Western leader who is active in restoring momentum to global cooperation.

It is a comfortable role for the activist and ambitious Mr. Sarkozy. During the Georgia war, he seized the opportunity, while holding the rotating EU presidency, to broker a ceasefire between Georgians and Russians. At the G-20, he has vowed to reinvigorate a dynamic of reform that seems to have lost some steam over the last year. He has said that he will resist any temptation to shift the G-20 into “management mode” and instead recapture the momentum of 2008 meetings that, in the eye of the economic storm, spurred breakthroughs in financial regulation.

In laying out his G-20 agenda, Sarkozy highlights many themes that have traditionally played well in France and the rest of continental Europe. Their overall thrust defends a brand of “gentler” capitalism that protects societies from market “excesses” of the sort often blamed on U.S.-style unfettered competition and lax regulations.  Paris – like Berlin and most EU countries – want to press for stronger international institutions to police the global market place, and the EU has gained some credibility for its reform calls by agreeing to cede some power (and seats) to emerging countries at the International Monetary Fund – a shift in line with the growing importance of the G-20.

A particular target of Mr. Sarkozy is the continuing dominance of the U.S. dollar in the global economy. The theme goes back to Gaullist complaints about the dollar’s “hegemony” as a way of forcing U.S. economic preferences on other countries. Now Paris has renewed its call for a change in the system. “The dollar can no longer be the only reserve currency,” France’s highly-regarded finance minister, Christine Lagarde reiterated this week. She cautioned that this change (and other reforms sought by France) cannot come overnight, but that the G-20 can add impetus to efforts to curb damaging speculation and fluctuations. On currency, for example, she said (without mentioning the damaged ambitions of the euro), that Paris and Beijing see a possible way ahead in the form of increased use of IMF facilities, called “special drawing rights,” as a way to provide an alternative reserve currency.  On the other hand, France seems unlikely to make much headway on some of its ideas such as a global tax on financial transactions designed to dampen market speculation. Without global agreement (meaning “without an end to U.S. and British opposition”), that proposal would be unworkable.

But Mr. Sarkozy will almost certainly score rhetorical points as a leading voice in the chorus of criticism against U.S. insistence on continuing its policies of fiscal stimulation.  The recent decision by the Fed to launch another round of “quantitative easing” (making massive quantities of credit available to U.S. banks) ran counter to the German-led consensus in Europe in favor of fiscal tightening.  In the crisis, Paris has often quarreled with the stance of German Chancellor Angela Merkel in favor of maintaining the budgetary rigor stipulated in the EU’s Stability and Growth and Pact. The French preference went to its own vision of “economic governance” in which political leaders would have more voice in setting the policies of the independent European Central Bank – in practice,  French tacit support for letting weaker EU economics resort systematically to big deficits.

Now Mr. Sarkozy has chosen his moment to restore the traditional Paris-Berlin axis in dealing with the challenge of shoring up the eurozone against future deficit abuses of the kind that has come close to breaking the single currency. To the surprise of many skeptics, the Sarkozy-Merkel team has now succeeded in pushing through tighter restraints on EU countries’ budget profligacy – already with agreement on fines for offenders and a new threat, still under debate, about even worse sanctions. This bilateral teamwork eliminates any risk for Berlin of being isolated in the EU and singled out as a country whose exports are to blame for U.S. job losses. Mr. Sarkozy’s move to close ranks with Berlin reflects a recognition that France, like Germany, has to worry about the risk of being dragged down by lax member states’ debts. That risk deeply angers German voters.  More broadly, the re-emergence of the Paris-Berlin economic axis as the EU’s core will do much to dispel French voters’ worry that their country has fallen behind its bigger neighbor in European power politics.

In his orchestrated development of French policy at the national, European and G-20 levels, Mr. Sarkozy has created an opportunity for himself to raise his political stature as a leader with a keen sense of timing and sound economic credentials. It comes at a time when effective leadership is in dire demand on both sides of the Atlantic.

-- European Affairs

 

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