Barroso cautious on idea of EU sovereign funds

PARIS (Reuters) - European Commission President Jose Manuel Barroso has voiced caution on French President Nicolas Sarkozy's suggestion that EU states create sovereign wealth funds, saying protectionism in the bloc should be avoided.

Sarkozy said last month Europe should have its own sovereign wealth funds to take stakes in companies battered by the global financial crisis and protect them from "predators".

Barroso said at the time the idea was "extremely interesting".

Sarkozy has since launched a 20 billion euro (17 billion pound) French strategic investment fund to take stakes in viable firms in need of cash as well as companies deemed to be of strategic importance that are vulnerable to takeovers.

In an interview with French business daily La Tribune published on Thursday, Barroso sounded more cautious.

"What is important is that we avoid any kind of protectionism. It wold be bad for the country that resorts to it and for Europe as a whole," Barroso said when asked what he thought about the idea of European sovereign wealth funds.

He added that such funds were usually set up to diversify the assets of countries with large foreign exchange reserves, not to protect national industries.

"We are not against nationalising or acquiring a stake in a company but we must bear in mind that competition rules must be respected," Barroso said.

"If each member state were to take protective measures, that could create problems in its neighbours and endanger the single market by fragmenting it," he added.