French Roast

Since September 2008, French economy minister Christine Lagarde, 53, has spent about four nights a week sleeping at the ministry. "I wasn't on the sofa," she said, laughing, over breakfast last week with NEWSWEEK's Christopher Dickey, but Lagarde described the relentless pace as officials worldwide struggle to save the global economy. Lagarde, who was educated in the United States, projects an image of cool control as the point person in the cabinet of the indefatigable President Nicolas Sarkozy. Excerpts from their conversation:

DICKEY: Have you been in touch with U.S. President Barack Obama's economic team, especially Treasury nominee Timothy Geithner?
LAGARDE: I talked to Tim several times when he was in his previous position [as head of the New York Federal Reserve], but not lately. I think they've all been under strict guidance not to communicate too much. That's my sense.

For four months, in Europe and the United States, officials have been grabbing at ideas, discarding them, picking them up again.
We transgressed most of the rules. We had to. We took initiatives that were just unprecedented … People sort of prep a first draft, put it to the public, then take it back, then review it, then reshuffle the cards and change the approach. I think [former Treasury secretary Henry] Paulson, as criticized as he was, had the merit of trying first. And sometimes when you are first to market, either you get it, and you are ahead of everybody else, or you need to rejig the proposal and you are criticized. But he was brave in many ways.

Are we beginning to see the outlines of a coherent plan?
As far as the Europeans are concerned, it is pretty straightforward. No. 1, to re-establish the credit circuits and make sure that the money is fluid in the pipes and properly identified. Priority No. 2, stimulate the economy in the most efficient, rapid and massive way, in as coordinated a manner as we possibly can. And No. 3, plan for the after-crisis. We have to think clearly about the major imbalances we have faced up until now, and which have precipitated the crisis: massive savings there; massive spending here. Clearly I am thinking of China and the United States in terms of balance of payments, balance of trade and currency relationships.

France's economy has shown considerable resilience compared with others in Europe. What does the French example teach?
I would characterize it as a very balanced economy. You have a balance between public sector and private sector. Public-sector expenditures are close to 50 percent of GDP. That's a big amount. If you look at the banks, all six major banks in France draw roughly 80 percent of their activity and profit from retail activity as opposed to investment banking or asset management. We have a support system for people who lose their jobs, which is also quite balanced. It's comanaged by the state and by the business association as well as the unions and it provides for roughly 55 to 65 percent of previous income for a rather long period of time. The balance we have built into the system is a shock absorber that is not available in many other economies. It has often been criticized because it can be a weight on the economy. But in periods of crisis, it helps us weather downturns.

How do you make sure credit is flowing?
There is massive resentment caused by the impression that banks are sitting on masses of money, reconstituting their operating margins, and not facilitating credit. Even if there is a gap between that perception and reality, the perception is what matters. That's why President Sarkozy gathered the banks at the Elysée Palace and … it really made headlines: "They give up their bonuses!" Demand for mortgages has declined enormously, [but] French banks are trying very hard to respond to the needs of corporate clients. And we have appointed a credit mediator, a sort of ombudsman, who receives complaints and investigates them. He can go to a bank and say, "Here's a situation you should really re-examine." He can finger-point publicly if necessary. And it's working.

Does it complicate the situation that many French people seem to have a deep suspicion of globalization, of capitalism?
We are very suspicious of money and any sign that you possess too much of it, while at the same time there is this inventiveness, creativity, willingness to become an entrepreneur, which is not often seen as a strength of our country, but which I think is. Until this year you could not be a "self-employed" person. Such a status did not exist in French law. We changed that. And I remember unbelievable discussions at the National Assembly, where Communist MPs could not understand what I was talking about, because in their minds, in the way in which they simplify relationships, you are either a boss or an employee. So the person who starts a business and employs himself, that, they could not understand. Since Jan. 1, when the new law went into effect, we've had 20,000 register—a thousand per day. We hope to have 200,000 by the end of the year. You know, you roll up your sleeves!

© 2009