Official visit to the United Kingdom
Ladies and gentlemen, it’s a great honour for me to come and speak to the City of London and I’m grateful to the Lord Mayor and the City of London Corporation for allowing this meeting to take place.
The City is Europe’s top financial centre, and I want to say that its strength is an asset for all the European partners. The UK is a major economic and industrial power which, like France, believes that globalization is a challenge which must be addressed. France and the United Kingdom’s destinies are interlinked. Two or three hours away by train, London is an integral part of the biggest economic region in Western Europe. This region makes us stronger, so we’re accountable for its vitality and jointly responsible for its development. We British and French have the same job, the same responsibility: namely, to emerge from the crisis and consolidate Europe’s growth.
FRANCE/ECONOMIC AND SOCIAL REFORMS
I’ve come firstly to tell you that the French government’s absolute priority is to continue the reforms we began, under President Sarkozy’s leadership, in 2007: a reform of the public finances, of course, but also economic and social reforms. On both sides of the Channel, I think the only responsible option to guarantee our sovereignty – to which both our countries are so committed – and our economic independence, the only responsible option is budgetary discipline. In the face of the crisis, we were compelled to provide massive financial support to the banking system, then our economy, to stimulate the recovery. Our responsibility now is to improve public finances so as to restore sustainable growth, without sacrificing future investments.
The British government has undertaken an extremely bold programme of budgetary recovery. I want to say that, for our part, we’ve launched the most rigorous programme for 20 years to curb public spending.
We’ve broken with the past, when governments chose to plug the deficit by increasing fiscal pressure. President Sarkozy and I decided to rule out any generalized tax rise. We’ve frozen resources for ministries, whose budgets are therefore undergoing negative growth in real terms. We’ve made a commitment to cut departments’ operating resources by 10% over three years, 5% of it over the first year, i.e. 2011. For the first time in our country’s recent history, we’ve frozen all transfers of funds to local authorities. We’re continuing the policy of replacing only one out of every two civil servants who retire. Since 2007, we’ve cut 100,000 jobs in the civil service. And over the period 2011-2013, we’re going to cut an additional 97,000.
These efforts are unprecedented in our country. As a result of the crisis, we reached a deficit of 7.7% of GDP in 2010. The efforts we’re embarking upon are going to enable us to get back down to 6% in 2011, 4.6% in 2012 and 3% in 2013. I want to stress our determination to achieve this goal for 2013. Moreover, this course was approved by Parliament in a pluriannual Act. President Sarkozy and I have wholeheartedly committed ourselves to ensuring it is followed.
Concurrently, we’ve just succeeded in reforming pensions. In order to maintain our pensions systems, we had to make structural adaptations. We embarked on them in 2007 by reforming what in our country are called special regimes. In 2010, we raised the legal retirement age from 60 to 62 and increased the age for full-rate pensions from 65 to 67, while maintaining our pay-as-you-go pensions system. In a country with a reputation for being hostile to reforms, I want to draw your attention to the fact that we’ve managed to introduce increases in the age threshold two to four times faster than in Germany, the UK and the United States.
Of course, there’s been opposition. Many people thought we would be forced to back down. We didn’t. We held firm, because this reform was necessary socially and financially. I’d also like to point out that since it was adopted by Parliament, it’s no longer been a matter of dispute and I’m absolutely convinced that no one will ever go back on this reform. The pension reform will have a positive impact on the public accounts from this year onwards, since it will enable the public deficit to be reduced by about half a percentage point of GDP in 2013 and 1.2% of GDP by 2020.
All these efforts are essential. But if we want to achieve growth, we must also strengthen the competitiveness of our economy and its capacity for innovation. I’d like to remind you that, in this area, the list of reforms we’ve undertaken since 2007 is long.
We reformed our labour legislation and thus broke out of the straitjacket imposed by the 35-hour week law. From now on, it’s possible for every company to negotiate its working hours, at company level, within the limits provided for under European legislation.
We reformed public services by introducing performance-related pay for staff, and – this was unthinkable in France a few years ago – even establishing minimum services on transport and in schools in the event of strikes.
We reformed French universities, which people said – and rightly so – wasn’t politically feasible, since many ministers – I was one – tried unsuccessfully to do so in the past. Now, nearly all French universities are autonomous and have been able to begin recruiting their teaching staff themselves and seeking the additional funding they need, which is what every major university in the world was doing, while it wasn’t possible in our country.
To improve companies’ competitiveness, we abolished the so-called local business tax, i.e. a tax paid to the local authorities, accounting for €7 billion which will be saved by companies in 2011. To encourage companies to innovate, we’ve tripled the R&D tax credit. This fiscal measure has been widely acclaimed by foreign – thus, British – investors. In terms of taxation, France is now one of the most attractive countries for research centres. Finally, we’ve launched a major future investment programme channelling €35 billion of public resources into all sectors of the future: universities, research, industry and the new technologies will be the main beneficiaries. There will be public investment only when combined with private investment, so this future investment programme is going to raise roughly €65 billion.
All these efforts and reforms are starting to bear fruit, since our growth has resumed and should reach 1.6% for 2010. In November, industrial production grew, as did consumer spending on manufactured products. So today we have every reason to believe that the growth targets we’ve set ourselves, around 2% in 2011, are attainable.
Everything is therefore being done to further strengthen France’s competitiveness and attractiveness. People sometimes forget, or don’t want to acknowledge, that France is a country wide open to the world.
A third of private-sector employees work for foreign companies and half the Paris Stock Exchange’s market capitalization is held by foreign companies. Ultimately, France and the UK are among the main destinations for foreign investment.
Ladies and gentlemen, we want to harness the full potential of our partnership with the UK in this spirit of building capacity to increase growth in Europe. That’s the second thing I wanted to tell you this morning. The French and British people know that what unites us is far greater than what divides us. They remember the trenches of 1914 – where so many Britons fell and now lie beneath French soil. They remember the dark hours of 1940, when Winston Churchill had even offered union between France and the UK. At any rate, due to the refusal [of this] by truly ill-inspired French political leaders, he offered the UK’s support to the Free French Forces and General de Gaulle.
Basically, despite all their differences and disputes, every time the important things have been at stake – in these cases, world freedom – France and the UK have united.
Today, although the time of bloody conflicts is behind us, we’re faced with the crucial challenge of a global economic war. If we want to maintain our economic and social models, which we’re so committed to, if we want to retain a leading position in the world, we must continue to grow closer and trust one another. We’ve embarked on defence cooperation, which I’d like to tell you is of a kind which can exist only between sister nations. We can’t go so far when it comes to cooperation, on subjects as essential as nuclear deterrence, if we don’t completely trust one another. On 2 November 2010, here in London, President Sarkozy and Prime Minister Cameron signed two treaties of historic significance on defence cooperation and access to common nuclear installations.
In this phase, we’re embarking on a path of even closer ties that preserves British sovereignty and French sovereignty. I’m convinced that we still haven’t all grasped the full extent of the interaction achieved by our defence industries. The British and French governments have just signed a road map consisting of very concrete projects. Our manufacturers are actively involved in these programmes and will be able to pull more weight in the face of international competition. For France, these closer ties are good; for Britain, these closer ties are good; I think they’re also good for Europe and good for NATO.
So there are no obstacles to the strengthening of Franco-British integration, and no taboos surrounding it. There are nearly 2,500 British companies in France employing more than 250,000 people and 1,500 French companies established in the UK with more than 330,000 employees. It takes snow storms or ash clouds to remind us, from time to time, that Britain is an island, so intertwined are our markets by virtue of the economic situation.
Let me take the example of the energy market. EDF Energy today supplies a quarter of Britain’s electricity and runs eight power stations in the UK. It plans to get a first EPR reactor up and running by 2018 and build four by 2025. Based on this Franco-British foundation, we’ll be able to build a world leader in third-generation power stations, capable of responding, with an unprecedented level of safety, to the demands of a world that needs ever more energy but at the same time ever less carbon. All this includes the sub-contractors: hundreds of British and French companies specializing in advanced technology, with high added value, which are the companies that will create the jobs of tomorrow.
To strengthen this shared competitiveness – this is the third thing I want to say to you – the first pertinent framework we need, albeit not the only one, is Europe. The UK and France, together with Germany, are leaders in Europe when it comes to research, and we have a duty to continue encouraging innovation. But today, we have to face obstacles that we must overcome together. The cost of registering a patent is ten times higher in Europe than in the United States. This is going to change, because ten European States, including the United Kingdom and France, have just proposed enhanced cooperation to create a much cheaper EU patent. France has also proposed that we create a European patent fund and a European venture capital fund to help innovative companies. I’d like the UK – and I’ll have the opportunity to say this to Prime Minister David Cameron very shortly – to make a full commitment alongside us to promoting these projects, whose fundamental aim is to make better use of European money and the strength of the European Union, on projects that directly encourage growth.
EU BUDGET REFORM
All these projects highlight France and the UK’s joint determination to reform the European budget. In December, we co-signed with three other Member States a letter asking for the European budget to be stabilized for the next financial perspectives. We believe that ambitious European policies are compatible with a stable budget, and that the challenge of the forthcoming budget negotiations won’t be to spend more, but better! Moreover, how could we explain to our fellow citizens that the EU is increasing its public spending, just when we have to make a very significant effort to reduce our own?
This is why France proposes redirecting part of the European Union’s research funding to activities which are much more directly useful to companies. This is why we’ve got to fight for less red tape when it comes to implementing the main European policies, starting with the research and innovation policy. Consistent with this, it seems to me essential for any new European regulation proposals to be backed up, from now on, by an obligatory impact study centred on companies’ competitiveness. For too long, in fact, European standards have been accumulating without any overall vision of their effects on companies. Together I think that we, French and British, can change this situation.
EURO AREA STABILIZATION/EUROPEAN FINANCIAL SUPERVISION/POST-2013 STABILITY MECHANISM/IMPROVED ECONOMIC AND FINANCIAL REGULATION
Clearly, the stability and dynamism of the Euro Area are other prerequisites for the prosperity of all EU States. The Euro Area is Europe’s monetary heart, and I want no one to have any doubt about the determination of the whole European Union to safeguard it. It’s an absolute political and economic priority. The way in 2010 that we collectively came to the assistance of Member States exposed to liquidity crises proved this determination and solidarity. We took massive measures to assist Greece and Ireland. We established a European Financial Stability Facility lasting three years. These emergency measures demonstrated Europe’s ability to react and adapt. But at the same time they showed the need to put more structural measures in place. More structural measures, first of all, to strengthen the collective surveillance of Euro Area States. The Irish crisis showed it was necessary to broaden this oversight to cover not just budget and debt criteria, but also the risks of a major macroeconomic imbalance. Work is currently under way to finalize legislation on this enhanced surveillance mechanism by next June.
Secondly, we had to address the glaring holes in European financial supervision. The fragility of some European banks in the turmoil proved that we couldn’t go on relying wholly on national supervisors whilst systemic problems in some Member States may and nearly always do have consequences for the whole of Europe. The European Union has made more progress in a few months than it did in 20 years, by adopting a complete system of financial supervision, with three European agencies, with their own powers, including the European Banking Authority – the banking watchdog – based here in London, and a European Systemic Risk Council, chaired by the European Central Bank President. Let’s be honest: who would have put any money on this outcome just two years ago?
Finally, the European States, whether inside or outside the Euro Area, realized that they could no longer improvise when confronted with emergencies – even if we, Britain and France, improvised effectively in 2008. In December 2010, the 27 EU Member States launched a simplified procedure for revising the Lisbon Treaty to allow Euro Area States to establish a permanent stability mechanism as from 2013. All these initiatives prove that Euro Area Member States are convinced the euro protects them. I read in the British press this morning that I wanted to ask Britain to save the euro; this is rather an excessive interpretation of my remarks. I don’t think the euro needs to be saved; I think the euro needs to be defended. We’ll be able to do this together, because we have a shared interest in it.
For the States which have adopted it, the euro is one of the foundations of the single market. It’s a key asset for economic operators, who can enjoy economies of scale without any exchange risks. Finally and above all, it’s a vital component of the European edifice. For all these reasons, Member States, and particularly France and Germany, have had no hesitation in proposing courageous and innovative solutions. Of this there must be no doubt: Euro Area States, and especially France and Germany, are ready to do everything – I repeat, absolutely everything – to ensure the Euro Area’s stability!
But I also want to say that, throughout this crisis, the British authorities have been solid partners, respecting our differences. They appreciate the exceptional interdependence of the European economies. They know the major role the City of London plays in euro transactions. They know it’s impossible for a country half of whose exports go to the Euro Area to stay totally cut off from its currency. So the United Kingdom has played her full part in the joint effort, agreeing to a limited revision of the Treaty and contributing to the recent emergency plans – I’m thinking particularly of Ireland. I’d like to salute these energetic and necessary measures, which did a lot to strengthen the credibility of the euro, Euro Area and entire European Union.
But the global economic recovery can’t be sustainable unless it is accompanied by better economic and financial regulation. Good governance is a requirement for institutions and States, in Europe as elsewhere. But it’s essential too for economic and financial operators. I know just how “twitchy” people can get when it comes to the financial regulation debate. I know that some would rather it had never taken place at all. I know that others want it very strictly limited. Finally, yet others would like the new rules to which the G20 has subscribed to remain a dead letter. I want to say that this isn’t France’s approach. During our G20 Presidency we’re keen to pursue with all our partners an ambitious agenda on financial regulation.
I think we must all be aware that the capitalist system, to which we are committed, came very close to collapse, was on the brink of the abyss. The French, British, German, European public is unlikely to accept the status quo and agree, once again, to finance the effects of a second upheaval, which would arise simply because the same causes have the same effects and because no rules have been created which apply the lessons of the crisis. If it’s not we – we Europeans, with you, the British – who regulate, who supervise, who seek to clean up the system, then I tell you the enemies of economic freedom will have every opportunity to make themselves heard in our countries!
The aim is obviously not to stifle financial innovation. We’re well aware that this financial innovation is one of the sources of our economies and businesses. What we want, simply, is better control of risks and greater accountability. Better control of risks through increased transparency and more effective control of risky behaviour. More accountability so that in the event of bankruptcies, public finances aren’t exposed, as unduly happened in this crisis. Our objective is also, by reducing regulatory arbitration, to develop competition in the only area where it must exist: namely, in the ability to supply the best service at the best price; it must never involve exploiting differences in regulation solely in order to have the risks in one place and the income in another.
I think we’ve made real progress on this path. In two years, since the first G20 meeting in Washington, we’ve created new rules on bank capital and liquidity. We’ve stepped up the regulation of derivatives markets, control of securitization and the fight against tax havens, and tightened the rules on market operators’ bonuses. At European level, following the reorganization of the supervisory institutions, important discussions are under way on the issue of banking resolution and crisis-management regimes, post-market infrastructures and short selling. These efforts must continue and we mustn’t succumb to the temptation to call them into question.
I want to say that we will have a twin objective in the G20:
First of all, we want to ensure the smooth implementation of the reforms the G20 has already decided upon and set in train. I think it’s about the integrity of the international financial system and about creating a level playing field for market players and financial centres.
Secondly, we will seek to add to the regulation agenda where it is still inadequate. We will propose strengthening the regulation of the parallel or so-called “shadow” banking system so that our efforts to strengthen regulation of the traditional banking sector don’t end up leading only to transferring the activity and risks to new forms of financial intermediation which would completely escape regulation.
We will also propose to our partners strengthening the “markets” section of the G20’s financial regulation reform agenda, building on European efforts to enhance transparency and afford greater protection to the integrity of the markets.
That, quite simply, ladies and gentlemen, is what I wanted to tell you this morning. I am shortly going to have talks with Prime Minister David Cameron and Deputy Prime Minister Nick Clegg. France knows that in the British government she has a reliable, courageous and pragmatic partner. We know that today no European State can withdraw into some sort of “splendid isolation”. So it’s by joining forces, working together in partnership that we can exercise leadership in Europe and the international institutions. I think the results of our cooperation over these past few months show that, in this journey, France and Britain are on the right track.
Q. – (inaudible)
THE PRIME MINISTER – Well, on the first question, which is basically: by establishing rules in the European financial centres which wouldn’t be respected elsewhere in the world, aren’t we putting ourselves in a position of weakness that would gradually lead a sector of financial activity to escape to other centres and other continents? Obviously that’s a risk we mustn’t ignore. It’s also why we’ve started by bringing together the European viewpoints on those matters and establishing European regulations to avoid unfair competition linked to the different regulations within Europe itself. Of course, the legislation decided upon at European level must be put in place harmoniously and according to the timescale, in all the European financial centres. The second aim is to ensure that in the G20, the G20 framework, we secure the necessary commitments so that the other great economic and financial powers will commit themselves to the same path. (…)
On the question of small businesses, it’s a very important subject for us. France is a country which has developed large businesses but has a little more trouble consolidating her small and medium-sized businesses. From this viewpoint, we often envy our German friends, who have large, powerful SMEs, which are one of the elements at the heart of the German economic engine. So we’re seeking a way of easing all the constraints on those small businesses. (…) That’s why I was mentioning just now a French initiative which I’m asking the UK to support, namely creating a venture capital fund for innovative SMEs in Europe.
Final question: the euro. (…) I’ve said this several times: the crisis we’re facing isn’t a crisis of the euro, it’s a crisis of countries which haven’t respected budgetary discipline, or a crisis of countries which have fragile economic systems. Europe’s duty today is to ensure that the euro is solid, that there can be no speculation against the euro, that there can be no speculation on the idea that the Euro Area could one day collapse. That collapse of the Euro Area – President Sarkozy has said it and I’m saying it again today – can’t be envisaged: it’s an event that can’t occur, for one simple reason, namely that the political signal sent would be an extraordinarily negative signal. It would actually be the end of the European adventure, at the very time when we need it most in the context of globalization. It’s no secret that I myself voted against the Maastricht Treaty; I was very sceptical for a long time about the establishment of a currency, in an area which in my view wasn’t cohesive enough, and without any economic or financial management tools being put in place. But the world has changed. Twenty years ago, when we were debating the question of greater European integration and the question of the single currency, the emerging countries represented less than 30% of industrial production. Today they represent more than 50% of industrial production. (…)
So what do we expect of the UK? Not that she join the euro, not that she change her policy: that’s not the issue. What we expect of the UK is for her to support us in the essential effort to strengthen the Euro Area. (…) We need an economic government of the Euro Area – in other words, we need a place where heads of State and government can take decisions. (…) I think we’ve moved forward in this direction; Germany, who was very reluctant about this idea, is now more open.
We expect the UK – whom we’re obviously not asking to change her policy – to support this effort. Likewise, we’ll gradually – and all this will take time – have to harmonize the economic, fiscal and social policies we conduct within the Euro Area. (…) And that’s also one of the necessary tasks of this economic government that must be established. Well, we expect the UK to look at this necessary integration effort in a positive light. Now, obviously the UK may be worried and say to herself: “a sort of gulf may open up between a more integrated Euro Area and the countries that aren’t in the Euro Area”. At the same time, the UK has every interest in the Euro Area’s remaining a dynamic area. The UK has every interest in the Euro Area’s being powerful, because it’s her market. And the UK would be the first victim of a weak Euro Area. (…)
IMPROVED FINANCIAL REGULATION/G20
Q. – Governments and you yourselves are rightly working on an improvement in [financial] regulation. (…) What’s being done to move the regulation forward?
THE PRIME MINISTER – The answer to the question is extremely difficult, because basically what you’re saying to me is that we should show intelligence, choose the best [people] and not let ourselves be blinded by short-term profit, because that’s the heart of the matter: in all the bubbles that caused the recent crises, everything was known, everything was transparent, everyone knew the risk was considerable, and yet this desire for quick results was stronger than everything else. What I mean is that when people hailed the miracle of Spanish growth, it still wasn’t hard to understand that this growth was based on an illusory property bubble.
Can you completely change human nature? You can work at it. You can try to put in place regulation institutions with broader foundations, European foundations that make it possible to pool different viewpoints, different economic approaches. You can seek, together, to appoint the most competent men and women. I recognize that the prevailing appointment system in the EU – given the competition between countries – isn’t necessarily the best system for spotting talent; but ultimately I’m optimistic enough to believe we’ll be able to improve things. (…)
On the issue of the G20 and leadership, it’s obviously a key issue. I also think we should give the G20 a minimum structure to ensure the decisions taken are permanent and that their implementation is monitored. The issue of the convergence of European businesses and in particular the issue of establishing an industrial strategy – which in a number of cases must lead French and British businesses to come together – is an absolutely key issue. (…)
So today we must look for the areas where – with innovation, with support for research, with a little capitalistic effort sometimes – we can encourage the creation of powerful sectors capable of competing with the rest of the world. And I think that, on nuclear energy, we have a tremendous example of the ability of France and the UK to build a Franco-British nuclear industry, based on the creation of nuclear power stations in both our countries, on our people’s acceptance of that energy, on French and British technological capability and enabling us to become world leaders. I’m thinking about what’s been set in train in today’s cooperation between France and the UK on nuclear energy; we’re also eagerly looking forward to the new regulations that the British government is preparing in this field, which will make it possible to move forward in that direction. (…)./.