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Financial crisis and governance of the euro

Published on May 26, 2010
Replies by Christine Lagarde, Minister for the Economy, Industry and Employment, to questions in the Senate

Paris, May 20, 2010

Senator, as you certainly know, Jean Monnet used to say that Europe is built and moves forward on the back of crises.

The economic and financial crisis we have just gone through has led Europe to discover a number of flaws and to propose remedying them.


You ask about economic governance. At the time of the Greek crisis and more recently at that of the financial crisis suffered by our common currency, the euro, it became clear that we lacked a number of mechanisms. This prompts us to look at the question of economic governance and make some proposals.

President Sarkozy and the Prime Minister have asked me to represent our country in the working group convened tomorrow afternoon by Herman Van Rompuy, President of the European Council, and specifically tasked with finalizing these proposals for modifications in the conduct of economic governance.

We need to have early warning mechanisms which work a bit better, a bit faster, and are based on a stability and growth pact, including not only the deficit and debt indicator, but also an economic competitiveness indicator. We also need to envisage the convergence of our economic models to which you referred, Senator.

We must also put sanctions mechanisms in place.

Some people are proposing amending the treaties. We have looked carefully at this and it seems to us – I have the Prime Minister’s authority to say this – that we can do this perfectly well without changing any treaties. Today, the treaties include adequate mechanisms: early warnings, on the basis of article 136; suspension of Community funds such as cohesion funds; suspension of European Investment Bank loans. These are all sanctions capable of reminding everyone of their obligations under the Stability and Growth Pact.

Stability obviously means budgetary effort, i.e. the action to reduce the public deficits, which the Prime Minister referred to, and was the subject of our meeting with President Sarkozy, your Finance Committee Chairman and General Rapporteur.

We also need to try and achieve growth together. To do so, we have to work on the Europe 2020 objectives and strive to align our economic models more closely.

Those with excessive balance of payments deficits must reduce them through a strict budgetary policy and fundamental reforms.
Countries with surpluses have also got to do their bit!


During the weekend of 7-9 May, Monday evening, during the night, and Tuesday, we worked on these issues. During the night of 7 May, all the heads of State and government, led by President Sarkozy, displayed European solidarity, particularly in the Euro Area, and our common determination to defend our currency.

What did we do? Well, we quite simply set up a European Financial Stability Fund, an emergency package of loan guarantees [by Euro Area countries] to the tune of the not insignificant amount of €440 billion and designed to remedy a weakness in the “euro house” as built ten years ago.

You will be amazed to learn that, as things stand at the moment, we can support Hungary – a country outside the Euro Area – or Ukraine – simply a neighbour of the European Union, but not a member country, like Greece, without inventing something new. That’s what we have done!

So over those days and nights, we set up this European Financial Stability Fund, which will be able to support States in difficulty, and be in addition to the International Monetary Fund, so as to act in concert, as we did in the case of Greece.


We discussed too the European Commission’s communication on reinforced economic governance. We also approved the draft text on hedge funds, on which Germany and France have a perfectly aligned common position.

This gave us the opportunity us to try and oppose the principle of the European “passport” (1), to prevent our Euro Area being a speculators’ paradise for absolutely everyone.


You are also asking me about short selling. As if we were suddenly discovering that Germany doesn’t operate like France!

I remind you that since September 2008, France has banned short selling of all financial stocks! In other words, Germany is doing now exactly what we did in September 2008.

In our country, of course, short selling of financial stocks remains banned.

When it comes to the short selling of sovereign debt in the secondary market, we need to consult further.

Believe me, solidarity in the Euro Area is strong and we are as determined as ever to maintain it and defend our currency!./.

(1) UCITS III, which gives funds a European “passport” so that they can be sold anywhere in the EU without further regulatory approval.

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