PARIS - FRENCH President Nicolas Sarkozy on Thursday proposed creating a state-run investment fund aimed at defending French companies from unwanted predators and helping small companies in difficulty.

Mr Sarkozy said the global financial crisis proved the need for governments to play a role in the economy.

'The moment has come to give the state the instruments it needs to intervene directly in the economy when it considers that strategic interests of the nation are threatened,' he said during a visit to the eastern Alpine region of Haute Savoie.

'I want for France to have a large strategic investment fund which will be a powerful arm in industrial policy.'

The state-controlled Caisse des Depots et des Consignations, or CDC, will run the fund under parliament supervision as a 'strategic priority,' he said. The CDC already serves as an investment bank for the government.

He didn't reveal how much money the fund will manage but said it will be able to 'intervene massively' when needed.

The fund, which Mr Sarkozy said should be created by the end of the year, will be designed to invest in companies judged 'strategic' with reimbursable loans or by taking a stake in companies where production risks shifting abroad.

'Its vocation will be to act in the national interest but as a sensible investor,' he said.

It will also fund small and medium sized companies which are struggling due to the credit crunch, he said.

CDC's own funds may be supplemented by public or private money and it will raise money by borrowing on the markets, he said.

Mr Sarkozy also said that from now until the end of 2009 businesses will be exonerated from tax on investments. The measure will cost the government about euro1 billion (S$1.92 billion) a year from 2011.

Mr Sarkozy said earlier in the week that European Union member states should set up their own government-run, or sovereign wealth funds to prevent European companies from falling into foreign hands as share prices plummet.

Mr Sarkozy has previously voiced criticism of sovereign wealth funds, which are found mostly in Asia and the oil-rich Middle East, and in Russia and Norway. They control an estimated US$2.5 trillion (S$3.75 trillion) in assets.

Critics contend the funds offer little transparency and could lead to those countries exerting political power by taking key stakes in strategic sectors such as defense, energy or banking.

Some analysts doubt whether other European leaders would support the plan, given that EU countries lack the deep pockets of the oil-rich nations. -- AP