Friday, June 17, 2011

Sarkozy Develops New Fetish

By Grant de Graf

It's official and now slated as a new trend that may permeate French society. It's called regulation. At an EU conference on raw materials and commodities this week, French President Nicolas Sarkozy ramped up calls for tough financial-market regulation on commodities such as oil, wheat and copper. (Sarkozy Prods Regulators)

In the week previous to the President's latest call for the regulation of commodities, he announced at an Internet fair that there should be tighter regulation of the Internet. (Sarkozy Seeks Global Net Rules)

Market concern was clearly ruffled, as Sarkozy's new spate of public speeches is showing a worrying trend, that if there's a problem or concern that develops, the solution is to to "regulate".

The French are scratching their heads, together with other pundits in the market. Jean-Paul Genet, an artist who resides in Paris, questions Sarkozy's line of attack or defense, depending on which way you look at it. "Next thing is that Sarkozy will be sending in regulators to mend broken marriages," he argues rhetorically. 

Regulation has a strategic value to society if it can achieve its purpose of eliminating trade or operational violations in the market. The danger is that over-regulation can crimp an entrepreneurial spirit that is crucial for any economy to grow. Secondly, it can result in regulatory arbitrage, which is a move of capital towards regions that are "regulatory friendly". For example during the period that followed 9/11, subsequent to the implementation of Sarbanes-Oxley in the U.S., London rallied a strong challenge to New York, for the title of the financial capital of the world, as many preferred to operate outside the boundaries of burdensome regulation.

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