- The Washington Times - Tuesday, March 30, 2010

Two very different visions on how to regulate markets and prevent the next world economic crisis will clash when President Obama hosts French President Nicolas Sarkozy at the White House on Tuesday.

Even as Mr. Obama spars with congressional Republicans over tougher regulations of the U.S. financial markets, he faces criticism from Mr. Sarkozy and other Western European leaders that Washington is being too timid, criticisms that Mr. Sarkozy repeated in only slightly veiled form the day before his Washington stop.

“You should reflect on what it means to be the world’s No. 1 power,” the French leader said in an address at Columbia University on Monday, inviting the United States to join its allies to create a “new global monetary order.”

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“The world does not stop at the East Coast, the world does not stop at the West Coast,” Mr. Sarkozy said. “The world needs an open America, a generous America, an America that shows the way, an America that listens.”

Mr. Sarkozy, in Group of 20 forums and elsewhere, has championed the idea of stricter regulation of financial markets, from tax policies to hedge funds. But the momentum for major, coordinated new regulation among the world’s top economic powers has faded as the 2008 economic crisis has eased.

But an animated Mr. Sarkozy made a renewed pitch for joint action, urging the United States to join Europe in “inventing the rules of the economy for tomorrow.”

The presidents of the world’s biggest and fifth-largest economies will discuss, among other topics, global financial regulation, a contested Pentagon $40 billion tanker-refueling contract and foreign policy crises such as Iran’s nuclear program and the war in Afghanistan.

As France prepares to take over the chairs of both the Group of Eight and the G-20 next year, Mr. Sarkozy arrived in Washington amid rising tensions between the U.S. and Europe over trade protectionism and financial regulatory reform in the wake of the deepest global economic downturn since the Great Depression.

Joined by Britain and Germany, France has accused the Pentagon of changing the specifications of a tanker-refueling contract to favor Chicago-based Boeing at the expense of Northrop Grumman Corp., which had been bidding in collaboration with Europe’s Airbus consortium.

“This is no way to act,” Mr. Sarkozy complained at a news conference with the British prime minister earlier this month. The United States “should not give an example of protectionism,” he said, if America “wants to be heard in the struggle against protectionism.”

Northrop had won a 2008 bidding contest with Boeing for the tanker contract, but its victory was overturned after Boeing protested. Northrop withdrew from the competition earlier this month, charging that the deck was stacked against it. Mr. Sarkozy may seek to extend the bidding period so that Airbus may fashion a new bid with Northrop.

The trade friction over the huge Pentagon contract comes on top of disagreements between Europe and the United States on the path toward financial reform.

“The world economic regulations cannot go on as they are,” Mr. Sarkozy told the Columbia students, signaling the strategy he will pursue at the White House. “We can’t accept a capitalist system without rules anymore.”

The absence of rules will cause “the death of capitalism,” he warned.

In January, Mr. Sarkozy proposed levying taxes on financial transactions to limit market fluctuations and to reduce short-term speculation, especially in currency rates. But Treasury Secretary Timothy F. Geithner has expressed opposition to the idea.

France also wants to regulate hedge funds more strictly. But U.S. officials worry that tighter regulation of hedge funds and private equity groups in Europe would discriminate against U.S.-based hedge funds.

Europeans also want to impose stricter limits on credit default swaps and other financial derivatives, which many fault for fueling the collapse of insurance giant AIG Inc. and exacerbating the global panic. AIG had to be rescued by the Treasury Department and the Federal Reserve.

Mr. Sarkozy met later in the day with U.N. Secretary-General Ban Ki-moon, with the stalled Middle East peace process and Iran’s nuclear program on the agenda. The French president and his wife, Carla Bruni-Sarkozy, will join Mr. Obama and first lady Michelle Obama for a private dinner at the White House on Tuesday.

On another issue, the French leader may have given Mr. Obama’s Republican opposition some fresh rhetorical red meat. Congressional GOP leaders have warned that Mr. Obama’s just-passed health care legislation will push the United States closer to the European social welfare model — and Mr. Sarkozy heartily agreed.

“If you want me to be really honest, when we see the U.S. debate on the health care reform from Europe, it’s difficult to believe …,” he said Monday. “Excuse me, but we’ve solved this problem more than 50 years ago.”

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