In a major strategic shift, France is setting up its first permanent naval base in the Persian Gulf, just across from Iran, President Nicolas Sarkozy announced during a visit yesterday to the United Arab Emirates.

The 400-strong military base will be built in Abu Dhabi, the wealthiest and most influential of the Emirates, and will include a significant intelligence operation, French officials said.

Right hand, left hand:

At first sight this is proof that capitalism works. Money is flowing from countries with excess savings to those that need it. Rather than blowing their reserves on gargantuan schemes, Arab and Asian governments are investing it, relatively professionally. But there are still two sets of concerns. The first has to do with the shortcomings of sovereign-wealth funds. The second, bigger, problem is the backlash they will surely provoke from protectionists and nationalists. Already, Nicolas Sarkozy, the French president, has promised to protect innocent French managers from the "extremely aggressive" sovereign funds (even though none has shown much interest in his country).