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Reform of international monetary system – Euro Area crisis/Franco-German harmonization – World trade talks – France/growth/taxation

Published on February 2, 2011
Interview given by Christine Lagarde, Minister for the Economy, Finance and Industry, to the “La Tribune” newspaper

Paris, January 31, 2011


Q. – In Davos, France presented her goals for the G20 Presidency. We’re a long way from the “new Bretton Woods” that the Head of State announced a year ago. Why have the goals been revised downwards?

THE MINISTER – The ambition is exactly the same, but it’s tinged with realism resulting from the work already undertaken. The ambition is for the long term and the realism for the short term. The aim is twofold: to achieve less volatility and prevent the big emerging countries being destabilized by massive influxes of capital, which is nevertheless useful for their development. Ultimately, we’re seeking to ensure solid, balanced, sustainable growth that creates employment.

Q. – How will this reform of the international monetary system be prepared?

THE MINISTER – First of all, by creating an appropriate body – in which the Chinese would obviously have a role – to debate exchange rates. It might be a sub-group within the G20. Another possibility is to regroup the countries whose currencies constitute the Special Drawing Rights [SDRs], the international monetary reserve tool. We should also broaden the basket of currencies on which the SDRs are based, in order to include the Chinese yuan. In parallel, we must opt for a code of conduct that enables capital flows to be regulated.

Q. – Where do things stand with the plan for a financial transaction tax?

THE MINISTER – It’s a job we’re beginning with the Germans, and we want to form a coalition of pioneers, but admittedly many countries are still very reluctant. The tax could take the form of a transaction on exchanges, because that’s the most identifiable and traceable thing.

Q. – How were your proposals to end commodity price volatility perceived in Davos?

THE MINISTER – I was very surprised by the positive reception given to this subject, which is a key point for [international] development. We propose, first of all, working on the physical commodities markets, by improving the infrastructures. There’s also the work on the financial markets, to prevent market abuses. On this subject, we must distinguish normal market activity – determined by the relationship between supply and demand – from speculation.


Q. – The Euro Area crisis seems to be dying down. But the Germans are demanding, more than ever, the imposition of virtually automatic sanctions for members who breach austerity. Does France support this demand?

THE MINISTER – Yes, absolutely and unreservedly. In the event of repeated deviant behaviour on the part of a State, the sanction will be imposed automatically, unless there’s a qualified majority who believe it was legitimate for a country not to respect its commitments.

Q. – What will the next stages of Franco-German convergence be?

THE MINISTER – As regards economic policy, we’ve agreed not to limit ourselves to correcting and sanctioning budgetary or competitiveness-related imbalances, but to carry out prevention by means of discussion amongst ourselves. It’s a new phase in the integration of the Euro Area.

Q. – The Chancellor has given a very precise example of desirable convergence: the retirement age. Are we heading towards a single retirement age in Europe?

THE MINISTER – We’ve begun cooperating more closely on a broad range of issues, it’s undeniable. You can’t set yourself common goals in economic policy without tackling issues of taxation – we’ve started doing it – or the financing of businesses and the labour supply… As for the idea that we’re going to align all retirement ages in Europe with the latest Spanish reform, which dates back to Friday, we’re not at that stage! And we mustn’t forget that the legal age is only one of the parameters.


Q. – In Davos, Chancellor Angela Merkel put the emphasis on the Doha trade negotiations. There’s a feeling France is in less of a hurry to conclude…

THE MINISTER – These issues of international trade are a Community responsibility. What’s more, the difficulty today in terms of the WTO and the Doha round doesn’t lie in Europe but in the poker game being played out between the United States and India particularly. Ultimately, President Sarkozy is convinced that the round can’t be finished without a decision by the politicians. The present mechanics of the World Trade Organization, turning everything into an “all-or-nothing” issue, mean certain failure.


Q. – Do you maintain your prediction of 2.5% growth for France in 2012?

THE MINISTER – I have no plans to revise it. We’re sticking to 2.5%, and we’ll see how 2012 pans out. The same goes for 2011, where I see no reason to alter our 2% prediction at this stage. Remember what we said a year ago about France’s predicted growth: growth in 2010 will definitely be close to 1.6% – that is, higher than the forecast in the initial finance bill – and for 2011 the aim is within our reach, as shown by the improvement in the confidence surveys.

Q. – In France, the debate on Net Worth taxation has begun; some fear a new, costly imposition.

THE MINISTER – The process must take into account both MPs’ proposals and the goals we’re pursuing, and furthermore it mustn’t cost the State money. As for me, I’m in favour of something simple, and therefore quite radical./.

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