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Thursday 4 December 2008

Interview: Christine Lagarde

A symbol of change – but is she the real thing?

Matthew Lynn meets France's new finance minister, Christine Lagarde.

So what exactly is Lagarde going to do? ‘Sarkozy told people that if you work hard, then they will get more pay,’ she says. ‘If you want to improve things, you have to make an effort.’

Translated out of the language of Sar­kozy’s standard stump speech, however, it doesn’t mean very much. The 35-hour week is being reformed. How? Well, you can now work an extra 220 hours a year, tax free, so long as you or your employer fills in the right forms. The wealth tax is being adjusted, but not abolished. Corporate tax is being reformed but only with lots of fiddly tax credits for research and development that mean companies might pay less tax, but only for the right sort of production in the right place. Even Gordon Brown, the past master of micro-tinkering, might decide it was all too complex.

Surely, I suggest, you have to make bigger, bolder reforms? ‘We have to use tax as a tool,’ she says, somewhat defensively, arguing that specific tax breaks have to be used to encourage investment. And yet when it is put to her that this interventionist approach is part of the problem, she doesn’t appear to get it.

The officials in Bercy still think they can steer the country’s economy in the way they did so successfully in the 1960s and 1970s. In truth, they can’t. What France needs to do isn’t that hard to figure out. Abolish the 35-hour week, slash corporation tax, and make hedge funds tax exempt (most of them are staffed by French mathematicians anyway) and France would be booming again. Given its existing strengths — skilled workers, great infrastructure, relatively low wages and, in the private sector, few strikes — every company in Europe would flock there.

Instead, Sarkozy’s team seems to think there isn’t really any problem with the French system, except that they haven’t been in charge of it. It is, in reality, perestroika: when Mikhail Gorbachov was running the Soviet Union, he set about re-invigorating its flailing economy with exhortations to work harder, try harder. He hadn’t realised that it was the system itself that was falling apart. Sarkozy and his team are stuck in the same rut. ‘Our state stifles us in France, and our politicians are part of the culture of the state,’ complained Laurence Parisot. ‘They think the state can control everything.’

Until that changes, it is unlikely that Lagarde can reform much, no matter how much ‘can-do’ spirit she brings to the job. She’s part of Sarkozy’s narrative of change: but she is still a long way from introducing the real thing.

More articles from: Matthew Lynn | this section

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