Sarkozy warns against abrupt monetary stimulus exit

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French President Nicolas Sarkozy warned central banks on Wednesday against withdrawing monetary stimulus measures too abruptly, saying it could prompt a collapse of the world economy.

In a keynote address to the World Economic Forum of business leaders and policymakers in the Swiss ski resort of Davos, Sarkozy made an impassioned plea for global cooperation to regulate the financial system.

"Either we are capable of responding to the demand for protection, justice and fairness through cooperation, regulation and governance, or we will have isolation and protectionism," he said.

The French leader said tentative signs of economic recovery should make governments bolder, not more timid, in regulatory and structural reforms.

"We must manage prudently the adoption of measures to support (economic) activity and the withdrawal of liquidities injected during the crisis," he said. "We must take care to prevent too abrupt a tightening that would result in a global collapse."

Sarkozy, a forceful advocate of stronger regulation and state industrial policy called for a refoundation and moralisation of capitalism, and curbs on the business bonus culture.

He endorsed US President Barack Obama's proposals to stop commercial banks from engaging in speculative proprietary trading and from owning hedge funds and private equity funds.

But he said the G20 grouping of major economies was the right forum to reach a consensus on appropriate financial regulation.

Sarkozy also said global imbalances needed to be corrected to prevent a repeat of the financial crisis, with surplus countries consuming more and deficit countries cutting back their spending.