Christine Lagarde: An American (Style) in Paris

Christine Lagarde is a French powerhouse with an American sensibility. A former head of the global law firm Baker & McKenzie in Chicago, she is now the Finance minister of France—the first woman to hold that post in any G7 country. Helping President Nicolas Sarkozy dial back the 35-hour workweek and other perks of the cushy French labor market has put her on the front line just as unions shut down transport nationwide on Oct. 18. NEWSWEEK's Tracy McNicoll caught up with Lagarde in suburban Paris, where she talked of French pessimism, and why reform can succeed. Excerpts:

MCNICOLL: A recent government study shows the French are a lot more pessimistic than the average European, even though they have less reason to be. Why?
The situation in France is, I would say, jolly good—in sharp contrast with the impression some French people have. This survey indicates the French population is skeptical, vaguely cynical about institutions, the Parliament, the media, representatives in general, and they have this distrust for institutions. We're really working as hard as we can to change that and to include as many people as possible. One of the huge values of our president is that he indicated right from the start of his campaign what he wanted to propose, and to have been elected with a solid majority, with more than 84 percent [voter turnout].

It's tough to reform a country where the perception of reality is skewed. Have previous governments played into those fears?
The overall economic situation of France is quite good with very low inflation, an unemployment rate that has been going down steadily for two years, a welfare system which is unparalleled if you include the social-security system, health care, unemployment benefits.

Was there an element of "Let's raise the fears" and play down the entrepreneurial spirit, the energy, the ability people have to take in their own hands their own destiny?
I think there was. Clearly, the 35-hour week was a very derogatory way to look at work, as if it was something that had to be cut out of the system, rather than a positive for the overall wealth of the nation. We need to reverse that, which is what we are doing with [tax breaks] on overtime.

I imagine leading a U.S. law firm you had something like 35 hours of rest a week. From that perspective, what did you see coming back to France?
One key difference is that [in the United States] work is actually valued and not regarded with contempt ... A second is freedom and flexibility, which we are instilling by this overtime measure. People who want free time, who aren't concerned about making more money, that's fine. They can operate in the system.

We're not hearing about sacrifices people will have to make.
Rather than "sacrifice," which has this terribly negative connotation, I like the word "effort." Because when you make an effort, there's something positive about it. Take the overtime example. People make an effort, they work longer hours, they create value, they satisfy more orders from clients who in turn pay higher bills. So there's a virtuous cycle we need to enter.

So even though France needs quick changes, we can't talk about austerity ...
Those are charged words. I talk about efforts and about rigorous management of our public finances.

Was France too slow adjusting to globalization, while Germany does well with a strong euro because it doesn't have the same problem of competing with Chinese products?
France adapted in a different way. Among companies that are extremely active internationally, a surprisingly high number are French. Their response was very often to invest outside France, and the 35 hours may have had something to do with it. Which is why we are trying to fix that.

Your growth forecasts seem very optimistic.
One, I probably belong to that minority of French who are deliberately and desperately optimistic. Two, it's not sheer optimism. Discussions with economists plus the outcome of what we're doing, on overtime, for instance, leads me believe we will be within the range [of growth projections] used for the 2007 budget, between 2 and 2.5 percent. I think we will be at the low end of that, but I still hope very much we will be within the range.