France's Sarkozy urges G7 vigilance on markets

By Anna Willard

PARIS (Reuters) - French President Nicolas Sarkozy has written to German Chancellor Angela Merkel saying authorities must be vigilant over financial market volatility and urging the G7 to consider steps to improve transparency.

In the letter to Merkel, current president of the Group of Eight industrial nations, which includes the G7, Sarkozy said governments must draw conclusions from recent market turmoil, although he did not expect the real economy to be affected.

He said G7 finance ministers, central bankers and the International Monetary Fund should discuss ways of improving financial market transparency without impeding growth, including regulatory solutions, when they meet in Washington in October.

"It is essential that we keep an eye on the transparency of the functioning of markets and their capacity to finance the world economy in an efficient and stable way," Sarkozy wrote.

Dated August 15, and written from Sarkozy's lakeside holiday residence in the U.S. town of Wolfeboro, the letter was released on Thursday.

Responding to the letter, a German government spokesman said: "The Chancellor made clear in Heiligendamm (at the G8 summit) that the discussion about greater transparency on the international financial markets must be continued".

Sarkozy, usually a vocal critic of the European Central Bank, praised monetary authorities for injecting liquidity into the markets in a timely manner to calm investors' nerves.

Equities markets worldwide have made losses in the past month as concerns over the U.S. subprime mortgage market and tightening credit conditions sent investors running for cover.