Economy minister admits she is 'seduced' by idea of French SWF

Christine Lagarde, France's economy minister, may establish a French sovereign wealth fund to counter the rising power of the state-owned funds from the developed world.

In a debate on French television, Mme Largarde called the idea "seductive" and said she was thinking of creating a French fund. Such a move would represent an astonishing volte face from the country that has been one of the harshest critics of SWFs, many of which are controlled by Middle East and Asian governments in the developing world and have become increasingly active in Europe and America.

It was just a few weeks ago that President Nicolas Sarkozy was issuing stern warnings about the danger of these "extremely aggressive" funds and joining a chorus of European parliamentarians calling for the imposition of a code of conduct on SWFs. It seems now that France could take an "If you can't beat them, join them" approach.

Mme Lagarde said a French SWF could be formed by hiving off some funds from the Caisse des Dépôts et Consignations (CDC), the massive state pension fund manager. The idea emerged from a report commissioned by M. Sarkozy into ways to increase France's economic growth.

The news comes as Qatar's prime minister confirmed yesterday that the emirate's fund was accumulating shares in the European investment banking giant Credit Suisse as a part of a $15bn (£7.7bn) investment programme in banking stocks. The emirate has been at the forefront of a wave of SWF investment in Europe and America that has piqued the attention of politicians on both sides of the Atlantic worried that their investments may be motivated by political rather than commercial reasons.

In recent months, Singapore's GIC has poured billions into UBS, while Dubai and Qatar have become the two largest investors in the London Stock Exchange. The activity in America has been even more intense, as one Wall Street giant after another has been bailed out by funds from China, Singapore and the Middle East.

France has been a destination that SWFs have, thus far, passed over. In one sense, the establishment of a French SWF should be of little surprise. The country is one of the most difficult to crack in Europe for foreign companies and a deep-pocketed SWF could be a useful ally for French companies looking to expand abroad. It would sit well with the government's interventionist policies.

The most infamous recent instance of French protectionism came in 2006 when the government played a central role in the merger of utilities Gaz de France and Suez. The move was seen as a defence against an unwanted bid for Suez from Italy's Enel. In 2005, the government drafted an emergency bill to protect "strategic industries" in an effort to shield Danone from a takeover by the American giant Pepsi.

The episode led to endless jibes about France's "strategic yoghurt." The World Economic Forum ranks France at 18 in its global competitiveness table, behind Israel, a fall from its position at number 12 two years before.