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Sarkozy calls for reform amid 'crisis of globalization'

By Paul Armstrong, CNN
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Sarkozy criticizes capitalism
STORY HIGHLIGHTS
  • Nicolas Sarkozy tells Davos "globalization skidded out of control" in finance crisis
  • Sarkozy tells delegates that he backs Obama bank reform plans which may break up some institutions
  • Sarkozy: Risks are too great if "we do not change the regulation of our banking system"

Davos, Switzerland (CNN) -- French President Nicolas Sarkozy threw his weight behind Barack Obama's bank reform plan as he delivered his keynote speech at the 40th World Economic Forum at Davos Wednesday.

Describing the past two years of economic gloom as a "crisis of globalization," Sarkozy, said our vision of the world had failed us and that we must restore the "moral dimension" to our financial system.

"From the moment we accepted the idea that the market was always right and that no other opposing factors need be taken into account, globalization skidded out of control," he said.

Last week Obama proposed the biggest overhaul of Wall Street since the 1930s, with a plan that included limits to the size of banks and restrictions on riskier trading. The controversial reforms could force the restructuring of some of the biggest names in U.S. finance, including JPMorgan Chase and Goldman Sachs.

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Obama promised that "never again will the American taxpayer be held hostage by a bank that is too big to fail."

But bank leaders gathering in the Swiss ski resort lined up to slam the proposals. "I've seen no evidence that suggests shrinking banks is the answer," said Barclays President Bob Diamond.

"If you step back and say large is bad, and we move to narrow banking, the impact of that on banks and on global trade, the global economy, would be very negative."

A poll by PriceWaterHouseCoopers released in Davos, revealed that 60 percent of CEOs are "extremely concerned" by the threat of over-regulation, with a further 27 percent describing it as the biggest threat to business group.

But Sarkozy told delegates that the risks are too great if "we do not change the regulation of our banking system and the rules for accounting and prudential oversight."

He added that "there are remuneration packages that will no longer be tolerated because they bear no relationship to merit." He dubbed it as "morally indefensible" when companies that "contribute to destroying jobs and wealth also earn a lot of money."

He then directed his wrath at "reckless free trade and currency manipulation," as he acknowledged Obama's appeal for banks to be dissuaded from engaging in proprietary speculation or financing speculative funds.