Sarkozy’s G20 plans fail to impress

January 24, 2011

By Ian Campbell
The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

LONDON — France is to chair the G20 and Nicolas Sarkozy has declared his goals. Unfortunately, the French president’s calls for more commodity markets regulation, a financial transactions tax and reform of the world monetary system look more like gestures to please the gallery than practical proposals.

Markets are unruly and Sarkozy’s focus is on taming them. But quite what his “regulation of primary commodity financial markets” might imply is unclear. Much of the world is alarmed that oil costs more than $90 per barrel. Drivers find filling their tanks painful. But the unpredictability of commodity prices is well known and commodity prices are not readily controlled by governments. Most sensible governments will be against even trying.

Besides, if high prices reflect high demand, as most analysts believe, the prices serve a purpose. They help to bring fresh supply on-stream while encouraging lower consumption and reduced demand. Only if there are abuses of the market can intervention be really justified.

Sarkozy also says that France wants a financial transactions tax. The target is clear and popular: the big financial institutions and their often excessive bonuses. But a financial transactions tax will punish genuine investors and impede the efficient allocation of capital to enterprises. It will add a layer of bureaucracy too. Yet it’s hard to imagine the big bonus-takers being affected.

As for the global monetary system, Sarkozy appears to want a new Bretton Woods. But that is a goal from which he has already stepped back. The world has no appetite for reforms that risk replacing an imperfect system with one that doesn’t work at all.

Even gestures can sometimes do some good, however, and the spotlight Sarkozy is turning on food prices might possibly lead to something useful. It may be that some speculators have too much influence in food markets. Given the burden high food prices place on the poor, investigation there is warranted.

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