French President Nicolas Sarkozy yesterday called for new rules to curb commodity price volatility, warning as he laid out his G20 agenda that the world risks food riots and weaker growth if leaders fail to act.
Addressing 300 diplomats and journalists at his Elysee palace to kick off his stewardship of the G20, Sarkozy seemed to row back on other stated goals of exploring changes to the global monetary system and the dollar’s role as reserve currency and reforming global economic governance.
Focusing on better transparency and regulation of commodities markets may allow Sarkozy to achieve real progress, after recent meetings with world leaders such as U.S. President Barack Obama and China’s Hu Jintao indicated he would struggle to win unanimous support for broader issues.
“How can you explain that we regulate money markets and not commodities?” Sarkozy said, speaking in an ornate ballroom in only the third major Paris-based news conference of his presidency.
“If we don’t do anything we run the risk of food riots in the poorest countries and a very unfavorable effect on global economic growth,” he said. “The day there are food riots, what country at the G20 table will say this does not concern them?”
Asked about France’s idea of looking at ways to wean the world off the dollar as sole reserve currency, such as broadening the IMF’s Special Drawing Right currency basket, and what support it had from G20 partners, Sarkozy was more coy.
“The dollar is, and will remain, the predominant currency,” he said, adding: “A predominant currency doesn’t mean a sole currency, we are allowed to reflect on things.”
Sarkozy also brought up an old idea of taxing financial transactions to fund a proposed $100 billion a year in aid for poor countries, which France would back as it would be a tax on speculators. He admitted, though, that some would oppose it.
With euro zone policymakers preoccupied with the bloc’s debt crisis, economists note now would be a tricky time for anyone to push sweeping reforms of the monetary system.
“It’s becoming more popular everywhere to have more transparency (in commodities). I wouldn’t be surprised if he could find some kind of consensus there,” said Gilles Moec, senior European economist at Deutsche Bank.
“On currencies and this big question of the international monetary system, I guess any European leader is not in the best position right now to talk about this. So I’m not surprised he’s talking down these issues and concentrating on things that are more achievable.”
Sarkozy, an unpopular conservative who hopes his leadership of the economic forum could boost his chances of reelection in 2012, has a three-pronged agenda for his G20 presidency: tackling swings in commodity prices, finding ideas for a new Bretton Woods system and redrawing economic governance rules.
Critics are skeptical of how much progress he can make in a year, especially after lukewarm meetings with Hu and Obama.
Sarkozy ran into U.S. resistance to his idea to establish a new Bretton Woods, the monetary order set up on the ashes of World War Two which leans heavily on the dollar.
On a visit to the White House this month, he was at pains to stress to Obama that his currency plans would not put the dollar’s role at risk — a message he reiterated on Monday, saying: “France does not want to call the dollar into question.”
Sarkozy also went out of his way to reassure China he would not join Washington in pressing Beijing to allow its yuan currency to appreciate, saying: “China is a major nation, far be it from me to tell them what to do about their currency.”
The third plank of Sarkozy’s agenda, creating a permanent G20 institutional framework parallel to the International Monetary Fund (IMF) and World Bank, also faces resistance.
Shifting the focus of his G20 presidency onto commodities not only means more chance of achieving concrete goals, but concentrates his efforts on a theme seen as a potential vote winner ahead of an April 2012 French presidential election.
Sarkozy’s popularity is near record lows around 30 percent and polls show that today he would lose an election to the left.
France, the EU’s biggest grain producer, has blamed financial speculation for contributing to soaring commodity prices. Analysts are divided over whether this has played as significant a role as economic fundamentals in driving prices.
Wheat prices in Europe nearly doubled in 2010, while a global economic rebound helped push oil prices nearly 30 percent higher in the last four months of 2010 alone.
Policymakers fear rising food prices could stoke inflation, protectionism and the kind of unrest that has been seen in Tunisia and Algeria in recent weeks. High food prices could also hit consumer spending in fast-growing emerging countries that are leading the revival of the global economy.
Washington has acted to prevent spikes in food prices and Europe is following suit, with proposals that would force traders to disclose their positions, put a cap on large trades and give regulators new powers to intervene to curb speculation.
But there are deep divisions within the broader G20 on how far any new global regulations should go, with major commodities producers pitted against consumer nations.
“It’s going to be difficult to have a global consensus on position limits until the case is better made,” a G20 source told Reuters after Sarkozy spoke.
In his remarks, Sarkozy also touched on Tunisia and Ivory Coast, two former French colonies in political turmoil.
Protests in Tunisia forced out long-time president Zine al-Abidine Ben Ali earlier this month, while Ivory Coast incumbent Laurent Gbagbo has refused to concede defeat after a November election he is widely recognized to have lost.
Sarkozy said there was only one “legal and legitimate” government in Ivory Coast — one led by Gbagbo’s rival Alassane Ouattara. He said France would offer economic aid to help the transitional government in Tunisia.