BREAKING NEWS

BREAKING NEWS

Interview: Christine Lagarde, French Economy Minister

Now Reading:

Interview: Christine Lagarde, French Economy Minister

Text size Aa Aa

The world is weighed down by financial, economic and social crises. The G20 summit in London promised reform of the financial system. What progress has been made on this promise? And what of those citizens affected by unemployment. Euronews talked to France’s Economy Minister Christine Lagarde about what she thinks of the outlook for her country and for others.

euronews Business Affairs reporter, Antoine Juillard: Hello Christine Lagarde, firstly thank you for having us here at Bercy…..The causes of the crisis include debt that’s too high and interest rates that are too low. The response to the crisis has been to increase debt and lower interest rates even further. Don’t you find that strange?

Christine Lagarde, French Minister for the Economy, Industry and Employment:
“Your analysis of the crisis is a bit narrow sighted. The crisis is ‘too much’ alot of things: too much liquidity, too low in terms of interest rates. Macro-economic imbalances between countries like China which save alot and those like the United States which spend alot. Financial services are too sophisticated to the point where investors themselves don’t even know any more what they’re buying or where the risks lie. There are too many pay and bonus schemes that are totally inappropriate and accelerate the crisis. The rules of prudence that apply to banks, and accounting rules, all of that is the financial crisis we’re now in.

“So we’re responding in the most effective way possible with credible players in the markets. But who is credible in the market? Whose signatures are respected? It’s the state’s signatures.

“The monetary policy that’s been adopted, that lowers interest rates, is crucial for bringing liquidity back into a market that has contracted completely, where there was simply no money left circulating between banks.”

euronews:
The G20 raised quite high hopes concerning the reform of the financial sector. What progress has been made?

Christine Lagarde:
“The G20 in London gave us alot of hope because all the heads of state and government representing 85 percent of global GDP agreed on a principle: no products, no person, no place will avoid supervision or regulation. And a very strong French initiative set out the areas in which these principles should apply. On tax havens: that was one of the toughest battles of the G20, but in the end we managed to ensure that tax havens will be put into one of three categories: firstly a blacklist of countries that refuse to co-operate, that fail to exchange information; secondly a grey list of those that accept the principle but that haven’t yet put the right systems in place. And then a list of countries that don’t have banking secrets and that do exchange all information.

“Today what results do we have? The black list is empty. All the countries that were on the blacklist have stated their intention to stick to an obligation to exchange information.

“As for the countries on the grey list, countries like Luxembourg or Belgium, hopefully soon Switzerland and Liechtenstein to mention the ones closer to home, they have decided to follow the rules.”

euronews:
There is no absolute agreement in Europe on financial questions. What role does the Berlin-Paris relationship have?

Christine Lagarde:
“Not all Europeans agree on everything at the same time. And the task for those Europeans convinced that they can play a real role on a regional level, is to manage to convince other partners. In this respect the Franco-German axis works well in staying firm on the matter of tax havens, rating agencies, speculative funds and European supervision.

“It’s not really surprising that not everyone agrees because you have on one hand the members of the eurozone and on the other those that are outside of the eurozone. In particular there is Great Britain, which is directly concerned since it is a traditional hub of the financial services industry and it is not in the eurozone.

“So the task consists of finding common ground and then going looking for compromise.”

euronews:
We know that today’s debt is tomorrow’s taxes. Is the French government worried at the moment about reducing its budget deficit?

Christine Lagarde:
“You know, when the house is burning you don’t pay attention to the water bill. Today we are committed- we are being asked by the European Commission and the International Monetary Fund and because all economists know what we need to do right now- we are committed to a massive stimulus plan. That can’t be financed in several ways; it has to be financed by debt.”

euronews:
Social depression is starting to embed itself in France and elsewhere as unemployment continues to rise. In which direction do we need to go to get out of this crisis?

Christine Lagarde:
“The fight against unemployment and the fight for jobs is something we are working on daily. For me it’s a real obsession because we are in a crisis with three aspects: the financial aspect, the economic aspect and the social aspect. The social aspect is obviously the most visible one and which is the most painful for our citizens. Companies affected by the crisis are having to make redundancies. They started by cutting temporary contracts, not renewing fixed term contracts, cutting out overtime; and then they look at eventually restructuring plans that require lay-offs. We will continue to see lay-offs even when the economy picks up because there’s always a time lapse between a decision and its effects being felt on the ground.”

euronews:
General Motors, which is one of the symbols of American industry, is under bankruptcy protection; people are calling it the end of an era. Is it the end of an era? What do you think a new era will look like in the automobile sector and the industrial sector in general?

Christine Lagarde:
“What I think characterises a new era is not that a manufacturer goes into Chapter 11 protection, which is roughly the equivalent of stopping debt repayments with creditors being temporarily prevented from chasing them up. It allows trade to continue while freezing credit repayments. That already happened to United Airlines and the aeronautical industry as a whole.

“For me what is much more symptomatic of a new era is the role played by the American government, which has not hesitated, alongside the Canadians, to nationalise an industrial giant, giving it 90 days to rebuild and reorganise, a little like we do in French bankruptcy law. That is most unlike an American government to intervene like that, it’s something we haven’t seen for a long, long time.”