President Sarkozy’s Toulon speech on 25 September on the international financial situation (excerpts)

President Sarkozy’s Toulon speech on 25 September on the international financial situation (excerpts)

I wanted to speak to the French this evening because our country’s situation demands it. I realize the responsibility which rests on my shoulders in the exceptional circumstances we find ourselves in.


An unprecedented crisis of confidence is rocking the global economy. Major financial institutions are threatened, millions of small savers in the world who have invested their savings on the stock market are seeing them melt away, day after day, millions of pensioners who contributed to pension funds fear for their retirement, millions of modest households are being put in a difficult position by the rise in prices.

Like everywhere in the world, the French fear for their savings, fear for their jobs and fear for their purchasing power. (…)

The French want the truth, and I am convinced they’re ready to hear it. If, on the contrary, they feel we’re hiding things from them, then doubts will grow. If they are convinced we’re not hiding anything from them, they’ll find in themselves the strength to overcome the crisis. (…) Telling the French the truth means telling them that the current crisis will have consequences in the coming months for growth, unemployment and purchasing power. (…)

Basically, a certain idea of globalization is biting the dust with the end of a financial capitalism which had imposed its rationale on the whole economy and contributed to corrupting it.

The idea of the all-powerful market which wasn’t to be impeded by any rules or political intervention was a mad one.

The idea that the markets are always right was mad.

For several decades we created conditions in which industry operated with the aim of achieving short-term profitability.

The growing risks people were forced to take to obtain increasingly exorbitant profits were concealed.

Remuneration systems were put in place which drove dealers to take more and more absolutely reckless risks.

People pretended to believe that by pooling the risks they made them disappear.

Banks were allowed to speculate on the markets instead of doing their job which is mobilize savings for economic development and analysing the credit risk.

The speculator rather than the entrepreneur was financed.

The rating agencies and speculative funds were left totally unsupervised.
Firms, banks, insurance companies were forced to write down the value of their assets in the accounts at market prices which go up and go down at the whim of speculators.

Banks were subjected to accounting rules which provide no guarantee on the proper management of the risks but which, in the event of a crisis, contribute to exacerbating the situation instead of cushioning the shock. It was a madness for which we’re paying the price today!

This system, where someone responsible for a disaster can leave with a golden parachute, where a trader can lose his bank €5 billion without anyone noticing, where people demand from businesses returns three or four times higher than the growth of the real economy – this system has created inequalities, has demoralized the middle classes and fuelled speculation on the property, commodities and agricultural markets.
But this system – this has to be said because it’s the truth – isn’t the market economy, it isn’t capitalism.

The market economy is a regulated market, a market serving as a tool for development, serving society, serving everyone. It isn’t the law of the jungle, it doesn’t procure exorbitant profits for some and make everyone else make sacrifices. The market economy means competition, reducing prices, eliminating the huge dividends gained without effort, and benefiting consumers.

Capitalism isn’t a system for the short term; it’s for the long term, the accumulation of capital and long-term growth.

Capitalism isn’t a system giving primacy to speculators. It gives primacy to entrepreneurs; capitalism rewards labour, effort and initiative.
Capitalism isn’t a system for diluting ownership and for widespread irresponsibility. Capitalism means private ownership, individual responsibility, personal commitment, a code of ethics, morality and institutions.

Moreover capitalism is what has allowed the extraordinary growth of Western civilization over the past seven centuries.
The financial crisis we are experiencing today isn’t the crisis of capitalism. It’s the crisis of a system which has distanced itself from capitalism’s most fundamental values, which has betrayed the spirit of capitalism.

I want to tell the French: anti-capitalism offers no solution to the present crisis. Going back to the collectivism which in the past brought so many disasters would be a historic error.

But on the contrary, doing nothing, changing nothing, contenting ourselves with burdening taxpayers with all the losses and acting as if nothing had happened would also be a historic error. (…)


The current crisis must prompt us to build capitalism on a new sounder foundation, base it on an effort and work ethic; it must prompt us to restore a balance between the necessary freedom and regulation, between collective and individual responsibility.

We must find a new balance between the State and the market when public authorities the world over are being compelled to intervene to save the banking system from collapse. A new relationship must be established between the economy and politics through the development of new regulations.

Self-regulation as a way of resolving all problems is finished.
_Laissez-faire is finished.

The all-powerful market which is always right is finished.

We must learn the lessons from the crisis so that it doesn’t reoccur. We have just been a fingertip away from disaster, the world was a fingertip away from disaster, and we can’t take the risk of it happening again.
If we want to rebuild a viable financial system, raising the moral standards of financial capitalism is a priority.

I have no hesitation in saying that from now on there must be a limit on the remuneration of executives and dealers. There have been too many excesses; there have been too many scandals. So either the financial industry agrees on acceptable practices or the government of the Republic will settle the problem through legislation before the year is out.

Executives must not have the status of managing agents and at the same time enjoy the guarantees linked to a labour contract. They must not receive free shares. Their remuneration must be indexed to the business’s actual economic performance. They must not be able to claim a golden parachute when they have committed errors or caused their businesses huge problems. And if the executives have a stake in the company’s performance, which is a good thing, its other employees, particularly the lowest-paid, must too. If the executives have stock options, the other employees must also have them or, failing that, benefit from a profit-sharing system.

Those are some simple principles based on common sense and elementary ethics – and they are something I’m not going to back down on.

Executives get high pay because they bear heavy responsibilities. But you can’t want to be very well paid and not want to shoulder your responsibilities. The one goes with the other. (…)

We have to find out where the blame lies and those responsible for this collapse must at least pay some financial penalty.

Secondly, we must regulate the banks to regulate the system. Since the banks are at the heart of the system. (…)
The crisis we are going through should lead to
a large-scale restructuring of the whole global banking sector. Given what has just happened and the importance of the stakes for the future of our economy, it goes without saying that in France the State will play an active role.

We are going to have to tackle the problem of the complexity of savings products and transaction opacity so that everyone can make a real assessment of the risks they take.

But we’ll also have to give thought to the issues which cause anger such as tax havens, the circumstances in which dealers can engage in short selling, allowing them to speculate by selling shares they haven’t got, and all-day trading, allowing them to buy and sell shares at any time – and we know the role these play in markets spiralling out of control and the creation of speculative bubbles.

We’re going to have to ponder the obligation to value assets at market prices which is proving so destabilizing in a crisis.

We are going to have to supervise the rating agencies which – and I stress this – have been failing in their job. (...)

But we wouldn’t completely sort out the financial system if at the same time we didn’t seek to end the currency disorder.

Exchange rates are at the heart of the financial crisis just as they are at the heart of the distortions affecting global trade. And if we don’t take care, monetary dumping will end up generating extremely violent trade wars, so paving the way for the worst protectionism. A French manufacturer can make all the productivity gains in the world. He can, at a pinch, compete with the Chinese workers’ low wages, but he can’t compensate for the undervaluing of the Chinese currency. (…)

So I repeat just how necessary I think it is for heads of State and government of the main countries concerned to meet before the end of the year to learn the lessons of the financial crisis and coordinate their efforts to restore confidence. (…)

I am convinced that the sickness runs deep and that there has to be a root and branch revision of the whole global financial and monetary system, as was done at Bretton Woods after the Second World War. This will allow us to create the tools for global regulation, now made essential by the globalization of trade. We can’t go on managing the economy of the twenty-first century with the instruments of the twentieth, no more than we can design tomorrow’s world with yesterday’s ideas.

When every day the central banks are making cash injections into banks and American taxpayers are on the point of spending a trillion dollars to prevent widescale bankruptcy, it seems to me that we need no longer question the legitimacy of public authority intervention in the operation of the financial system! (…)

In these exceptional circumstances when everyone absolutely has to act, I call on Europe to ponder its ability to cope with the emergency, to rethink its rules, its principles, learning the lessons of what is happening in the world. Europe must give itself the means to act when the situation demands and not condemn itself to inaction.

If Europe wants to safeguard its interests. If it wants to have a say in reorganizing the global economy, its leaders must start thinking together about its competition doctrine – to my mind, competition is only a means and not an end in itself –, about its ability to mobilize resources and prepare the future, about the economic policy instruments and objectives assigned to monetary policy. I know it’s difficult because there are 27 countries in the EU, but when the world changes, Europe has to change too. Europe has to be capable of drastically changing its own dogmas. (…) As EU President, I shall propose initiatives along these lines at the next European Council on 15 October.


As regards our country, I tell the French who fear for their savings deposited in banks and financial establishments: French banks seem to be in a position to overcome the current difficulties, but, I say this solemnly, if speculation were to put them in a difficult situation, I wouldn’t accept a single depositor losing a single euro because a financial establishment proved unable to meet its commitments. Savers who have trusted our banks, companies, our country’s financial institutions won’t see their trust betrayed. They won’t pay for the possible errors of the executives and possible imprudence of the shareholders. The State is here and the State will do its duty.

I make a solemn promise this evening: whatever happens, the State will guarantee the security and continuity of the French banking and financial system.

Equally determinedly I say: if the present difficulties were to lead to a restriction of credit depriving the French and businesses, particularly SMEs, of the resources to finance their investments or ensure their cash flows, the State would intervene to underwrite this funding. It would do so through bonds, through guarantees, through capital injections or by amending banking rules, but it would do so to prevent the economy fatally spiralling into a long-term recession which we won’t tolerate. (…)


Because of the crisis, the pace of reform must be speeded up, not slowed down.
I want to tell the French that there is no miracle solution allowing our country to dispense with the necessary efforts to overcome the crisis.
Of course, we must start by thinking about the most vulnerable whose lives are already not easy when there isn’t a crisis, but whose lives are unbearable in times of crisis. It’s in these moments that we have to show the greatest solidarity with those in difficulty. This is why I took the decision to create the RSA (1), the minimum vieillesse (2) and the most modest reversionary pensions and to grant those on the minimum welfare benefits, whose purchasing power isn’t guaranteed, unlike those with family allowances and retirees, an exceptional allowance to make up for the fact that their benefits aren’t keeping up with the real increase in prices. When you want to tell the French the truth, you have to tell them the whole truth, and the truth is that the State can’t go on forever financing its current spending and spending on solidarity by borrowing. One day we have to pay our debts. (…)

So to restore some room for manoeuvre in order to prepare the future, the State’s operating expenditure has to fall. Next year the civil service will shed an unprecedented total of 30,600 jobs. The revision of public policies will be pursued very swiftly. (…)

After the radical revision of the "judicial map" [location and jurisdiction of French courts] and restructuring of the military bases, we will go further in the reorganization of our government departments and public services. So next year, we are going to start phase two of this reform.
And I announce that we’ll start work on the major reform of our local authorities in January. The time has come to think about the number of our local government levels – their number and overlapping responsibilities is a source of inefficiency and additional expense. Our economy absolutely must be competitive. If we want a competitive economy we can no longer make it bear an excessive public expenditure burden. I shall shoulder my responsibilities vis-à-vis the staff reductions and reform of French local government levels. We’ve been talking about it for too long; now we’re going to act, we’re going to take decisions.
But here too I owe you the truth: in the current economic situation I won’t pursue a policy of austerity because austerity would exacerbate the recession. So I won’t accept rises in tax or social security contributions which would reduce the purchasing power of the French. Since our goal is to give the French back purchasing power, not reduce it.
I won’t agree to increasing charges on businesses because that would weaken their competitiveness when, on the contrary, it should be strengthened. (…)

France will pull through not by working less but by working more. (…)
The government has put an end to the extremely harmful consequences of the the 35-hour week. We have removed tax from overtime pay. We have kept tax exemptions on low wages. We have brought in the RSA and boosted statutory and voluntary profit sharing. There is a main thread running through all these measures: ensure lower business labour costs, that work pays, the labour market is freed up and work is rewarded. (…)

The forthcoming Act on statutory and voluntary profit sharing is wholly consistent with this goal of restoring the balance between capital and labour. By not giving all the benefits to company directors and shareholders, but instead giving a greater share to those who through their labour have created the wealth, restoring employees’ purchasing power without increasing their companies’ fixed costs and thus putting capitalism back on the right track, this is the other revolution we have to undertake.

Need I add that in the present global economic situation, anything which could contribute to increasing labour costs would be altogether suicidal. (…)

The other face of capitalism needing a boost in value is the entrepreneur. On one side there is financial capitalism and on the other entrepreneurial capitalism. Alongside the labour value, we have to put the spirit of enterprise back at the heart of the economy’s value system. That’s the whole philosophy behind the Act on modernizing the economy and it’s the economic policy priority.
We have to support the worker’s efforts, as opposed to the speculator’s easy money, we have to support the personal commitment of the entrepreneur who risks everything in his/her business, as opposed to the anonymity of the financial markets, we have to support a production capitalism as opposed to a short-term capitalism, we have to accord priority to industry just when the financial noose is loosening, that’s the whole purpose of the economic policy we want to pursue.


Finally, telling the French the truth means telling them – even if not everyone is happy about it – we are moving from a world of abundance to a world of scarcity. I.e. moving from a world in which natural resources are used as if they were inexhaustable to a world where their impending exhaustion will be a matter of daily concern. (…)

The French will have to produce in another way, consume differently. They will have to learn to keep on striving to economize the now rare resources which can no longer be wasted.

Pollution and global warming threaten the planet’s future. Everyone is going to have to make efforts, change their behaviour, pollute less. (…)
In tomorrow’s world, the polluter-pays principle will apply everywhere. If we don’t apply it, we will bequeath to future generations a world in which life is impossible.

While there’s a need to tax investment less, tax labour less, penalize effort and success less and tax clean products less, we must, on the other hand, tax pollution more.

Using the tax system to address the environmental challenge is essential if we want to encourage radical changes in behaviour.
While in the present situation where so many French face a reduction in their purchasing power we have to rule out increasing the price of staples, I want to say how much I believe that the “bonus-malus” system (3) is a good one. The experience with cars has been particulary conclusive with 500,000 "bonuses" paid out in eight months, which have massively increased the demand for more environmentally-friendly vehicles. The extremely strong incentives in the "bonus malus" system is speeding up the process of changing consumption patterns by years; we’ll have to extend it to other products. There will be full consultation on this. It will be done gradually. But it will be done. It’s a promise. Just as I solemnly promise that all the conclusions of the Grenelle Environnement (4) will be implemented. (…)

I believe in sustainable growth. (…)

And implementing the Grenelle Environneme means a fourfold increase in the number of dedicated lanes for public transport vehicles [such as buses and trams]. It means building 2,000 more kilometres of high-speed rail track. We are very proud of the European capital of Strasbourg. But when it takes us so many years to get the TGV to Strasbourg, let me tell you, that doesn’t enhance our country’s image. If we wanted Strasbourg to be the capital of Europe, then we had to build the TGV Est faster than we did, this is the decision which François Fillon, Jean-Louis Borloo and I have taken.

Implementing the Grenelle Environnment also means renovating all social housing and public buildings to make them energy efficient. (…)
Faced with a crisis, there’s always a choice between two attitudes: there’s the one which consists in keeping one’s head in the sand, waiting for it to pass, waiting for growth to come back, since it will. And then there’s the one which consists – and this is the policy we’re going to pursue – in taking advantage of the crisis and making it an opportunity to go ahead with the reforms which have been delayed too long in our country, which our country needs and will enable it to gain the most from the recovery. (…)

I want us to develop massively the research programmes into the new energy sources – because we’ve got nuclear power doesn’t mean we needn’t be involved in new sources of energy. We need a new source of energy and nuclear power. We’re going to invest massively in clean technologies, in the new transport systems such as the electric car. We’re going to speed up the replacement of our nuclear power stations by new generation power stations. We’re going to get the public transport infrastructure programme under way as fast as possible. And this will give work to our businesses. I want to see us start looking into a major project to modernize public transport infrastructures in our major towns and cities, where the situation has often become critical. (…)


We can’t wait any longer before investing in training, research and innovation in order to achieve the digital revolution. (…)

This is why (…) I wanted our universities to be independent and why part of the capital of EDF has been sold to fund the modernization of our campuses. I also wanted to give our universities ownership of the intellectual property rights for their discoveries and give them the resources to capitalize on them. We are going to develop this system still further.

As regards research, with the rate of the crédit d’impot recherche (5) raised to 30% [of investment on R&D], we now have the best, the most ambitious system for encouraging research by our businesses. The reform of our public research system will be pursued until its completion. A national strategy for research will be defined.

We are going to go on making training and research a budget priority, regardless of today’s problems,

All these challenges are immense.
But France, the France we love can meet them. I’ve confidence in the French. I’ve confidence in France’s strengths. I’m certain our reforms are going to work. I’m certain that through our efforts France will be able to take her due place in the world of the twenty-first century. I’m certain that we will succeed in rebuilding capitalism on a sounder basis.

Never, I realize, since 1958 have so many changes been made in such a short space of time. When the global economic situation improves again – since it will get better again because mankind’s history is the history of crises and then recoveries –, when it gets better again, we’ll see all the fruits of these efforts in the stability of our finances, jobs, purchasing power and everyone’s wellbeing. I have no illusions about the gravity of the crisis, but I’m optimistic about France’s strengths.
I’m determined to go on modernizing our economy and society whatever the difficulties because we no longer have any choice but to do so, because, in my heart of hearts, I’m convinced that there’s no other workable path for France.

Last modified on 08/10/2008

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