The View From Paris

He ended up giving in to some of the Jean's requests, including an extra ten billion euros worth of targeted tax cuts. Nice for the recipients, but not a great result for the Western leader who was supposed to be turning the tide against populism. But that was then. This week, the French had been hosting the G seven meeting of finance ministers and sent for bank governors, and you have to say that France and the French economy are looking better than most. I went to Paris beginning of this week

to find out more. In this episode, we're going to play you two interviews from that trip. The first with the French Finance minister himself, Bruno Lemaire, and the second with Laurens Boone, the extremely smart chief economist of the O E c D now Monsieur le Maire is known for being a mischievous finance minister. He sometimes likes to make a splash. I think when I spoke to him in his grand office at the French Treasury, he didn't want to make many waves with the G seven coming

to town. But see for yourself. Listen to first the edited interview with him, and then hang on for a more candid take on France and the state of economics from Laurens Boone. I wanted to talk about President Macron and where he stands in the global stage. When he became president, he did seem to be in confronting one of the big challenges that people face, populism. He was going to be a role model for for the free

world in showing us how to defeat populism. If you were looking at the last year or so, you'd say, well, the lesson of the example that MCCA is setting is you need to give in to the populace. And then you do find is that is that the lesson of the response to the yellow vests last year. I think that the right response to the yellow jackets movement is to take into account the difficulties that many people, either

in France or in any upan country are facing. The rise of inequalities among developed countries is a key issue. The differences between the highest wages and the other wages is a key difficulty. The fact that some of the people, either in France or once again in any other country, are not able to leave from their earning is a key question. And I think that the yellow jacket movement is not only a French movement, but it's also the evidence that varies a problem with the capitalism as it stands.

We need to improve capitalism, and I think that the fact that we have decided to stick to the path of reforms by taking or shoe into accounts the requirements of all the people that are asking for more fairness, for more justice, is the best way of dealing with that issue. They took their concerns to the streets, including with violence, and the response of the government was to give. In was to give. I would not say that we

are not giving to a violence. We are against any kind of violence, of course, but even if the movement of the Yellow Jackets has transformed at the end into a violent demonstrations and violent including attacks against the policeman and story stores on the streets and so on. I think that we should not undermine what is behind the

yellow jacket movement. Behind the yellow jackets movements, there are men and women that are not living distantly from their jobs and from their earnings, and they are just asking for a kind of distancing. They want to have a decent life, they want to leave from their jobs, and all our policy is trying to give a concrete response

to that fair requirement. We want work to pay and that's it' that's at the heart of our economic policy and in pushing your version of the right economic model, the French economic model and what they believe Europe should look like. Is it going to be easier if and when you can ever get rid of the UK, if the UK finally does achieve brexit. No, I really think that the fight, that the fact that the UK is leaving the EU is a pity and I'm sad about that.

Frankie speaking, Francis says hosting this G seven, and it looks like luck is on on France's side. At the moment. There are things that have been failures in the past, like failures to to boost exports significantly over the years, a failure to reign in borrowing in debt, and now if we look this year, both of those things look

like strengths. Frances is less exposed to the trade wars and actually has loosened fiscal policy potentially, just as other people are starting to say their economies need a bit more support. So are you Are you a model for the rest of the world or just very lucky. I would not say that we are modeled, and they would not say that we are lucky. I would just say that we are strongly willing to improve the competitiveness of the French economy. And I think that with em Macon

we have taken the right decisions. We have taken the right decisions by transforming or taxation system, by improving or laberal market, and by taking all the required decisions to support or enterprises and samese. So I think with that we're on the right track. We have very concrete results.

I mean, that's the level of growth easier satisfying one even if we can do more, and that we can improve that situation we are reducing the level of an employment in France or we are on the right track, but we are fully determined to stick to the path of reforms for the sake of having better results. When you think about the things you want to change, it does look like the summit is going to be hijacked

by the big Internet companies. There's been much discussion around from Donald Trump tweeting criticizing the French proposal for taxing these big internet companies on their trade in the country. But also you have talked about that the concerns around Libra and the Facebook's proposed new currency. So do you

think that's going to end up dominating everything. I think that's a key issue and it will dominate not only the summer, but I think that all these issue of the digital giants will dominate the economic debate for the

next decade. I think that's a key issue. And you should also mention the fact that the US administration has decided to impose a penalty of five billion dollars on Facebook, which is a clear signal of the necessity of putting more regulation among the Internet giants and the necessity to build together a fair regulation for the Internet giants. Then there is a question of the currency, the so called Libra,

the project from a Facebook. I think that we have to be very cautious and we have to avoid this proposal Libra becoming a kind of a sovereign currency. I don't want a private company to take the whole of a sovereign state and having the power of in storing a sovereign currency. I think that it would be a threat for the sovereignty of the states, and it would not feed our idea of what a sovereign currency should be.

There's a lot of opposition to this proposal, but I wonder in practice how easy is it going to be to prevent Facebook from introducing this proposal. I mean, it's one thing to set themselves up as a bank, but having just a method of payment globally, arguably they already have the capacity to do that. If it doesn't if it is only a method of payment, fine, But if that method of payment becomes a sovereign currency, it might

be a parliment. We also have to ensure to all citizens that there is no problem with money lundering, for instance, or the funding of terrorism. So we have to give all the insurances to our citizen that this way of exchanging goods is sticking to the same kind of commitments that everybody is obliged to take. You could say this, actually, even this opposition and debate shows how dominant these companies have become in their influence on the discussions at global levels.

I mean, this is a G seven meeting of finance ministers and one proposal by one company. It sounds like it's going to take quite a big chunk of your discussions. Yes, but you know it is not any company. It is not the smallest company of the world, which is one of the biggest company of the world. So I think that it's our job to define the regulatory framework that is necessary to avoid any risks linked to the creation of such a libra. That's what we try and get

into the issues as well on the Stephanomics podcast. So thank you very much. Thank you. So that was Bruno Lamaire, the French finance Minister, speaking just before the G seven meeting of finance ministers and central bank governors that he was hosting in Chauntily in northern France. Now here's Lawrence Boon, chief economist at the o e C. D. Laurence welcome to stephanomics. UM. I was talking to the Finance Minister

Bruno Lamaire earlier. He's very focused on the G seven, but I and he meant he said that he thought maybe France was a model for other countries. I thought,

if they are a model, it's by luck. You know, you've had years of not managing to really significantly increase their net exports and their success in the global trading system, not really getting on top of their debt, and they're borrowing as abc D and others have often told them to do, and most recently giving into the populist giving them quite a lot of money to make them go away. Do you think that is a model that the rest

of the world should follow. Ignored ignored the OCD advice on lots of things, and you'll end up coming smelling of roses. So there's one thing which I think is true, UM, is that, as you were a leading to, France is much less dependent on global trade and expots than many other your area countries. Whereas you will see that in Germany, for example, about twenty percent of the value edits coming from manufacturing, in the frant sits on the ten percent.

So when the same as the UK, although the French were always saying that they're much bigger manufacturing what they have their own brands and your kay, it might not be always the local brand, but so that's true. That's when when the economy is going down because of a contraction in trade or slow down in trade, and FRONTS attempts to feel much less than the other. You saw that in twenty or nine with the Big crisis, where the decision was about half what it was in other countries.

But conversely, when the rest of the world is booming on the back of expansion expansion every trade, then France is going less fast all in normal Fronts comes as a welfare farming country in twenty nineteen UM, but it's still one in the quarter of GDP. Growth is you know, not exactly a boom salm, but in France we like to be put well, but it is striking in years

of people pointing to Frances. You know, now, I think debt public debt ratios a share of the economy, the very large share of government spending in the economy include something like six if you're also including the industries that are owned by that both the government, the o C D and others have been telling France for years that it ought to do more dramatic reform, that it was stuck in the past, that it was going to face and have to face the music at some point. It's

never really had to face the music. In fact, as I say now, it seems to be doing quite nicely relative so I think it had to face the music in a sense with what happened in December, and then that was quite a big wake up call about them French. Of the social economic background in France. Um, it was a big wake up call in terms of yes, fronts is a highly redistributive country and you alluded to it. Fifty seven percent of g D people expending is the

u c D record. But these massive redistributions actually not enough to advise people concern and I think would happen in December should really shed light on the structural issues that FUNDS has, which is mostly a huge inequalities of opportunities. Um, we've just published our flagship publication, Going for Growth, which monitors reforms on product market, label market, and I think we can barely say that there's still a lot to

do in Funcy. Even so I must say that that reforms have been proceeding for the past few years, even in sometimes in small steps, but where it's it's the beginning of a journey. I have to say you mentioned that report, um I have I've probably been doing this job too long, but I've had a lot of read a lot of similar reports from the cd UM and which normal we publish it with. Yes, that's right and well, but also in sort of other fields. And of course you've not been a chief economist for for all of

that period. But I was sort of struck that the description of the problem changes in these reports. So in your you talk about the need to particularly the sort of inclusive element. We need to raise opportunities for all challenges of globalization, digitalization, aging, environment is more front and center than it has been maybe in the past. But the solutions that the o c D sees to all these problems seem to be much similar to the ones they saw before. And we always need to have structural

reform of product markets and labor markets. I mean, some people would say it was doing some of those reforms in some of these countries that cause the political backlashes which governments are now dealing with. UM I think in a sense some of what you say is is Some of which you to is actually right. Um, if you look at the headline of the reform we recommend, they

look pretty much the same. But when you look at a more granula level and looking for in that's something we want to do math, they've actually evolved quite significantly. Let me take the example of the mean mum wage um fifteen years ago, twenty years ago. I'm not'm sure you were reading it already. Invite you know any farming ly the O E c D would say minimum wage

bad for employment and label market. I think when you look at what we do now, and it's visible in going far ways other job strategy, we are much more pre size and it deepens a lot more on the countries. There's definitely been a change of attitude across the well certainly across a lot of economics economists on the minimum wage.

But I was thinking, for example, of the sort of structural reforms you talk about, reforms to boost competition in markets for goods and surfaces, opening up markets to entry, competition and foreign trade is essential for innovation. You have all this stuff, but when you do that, I mean the way that it changed. The way that it increases innovation and increases efficiency is by forcing some companies to close down and forcing some people out of work and

putting them into other things. And it's precisely that kind of actual change that a lot of those yellow vests would have been, at least at some level complaining about they feel already that the economy has changed too much and that their old lifestyle has been threatened. It's true. So if let's look at it in sequence, higher competition will boost innovation. There's there's a little doubt for that.

Now there are two consequences we should take into The first one is higher competition and intellectual property right, and never look at one policy in isolation. It's higher competition and a regulatory regime for property right that will allow the innovator to keep a bit of the rent of the innovation it's making at the beginning, but not too long. And if we look, for example, at the pharmaceutical industry, those ones have probably been there too long, so then

they start inventing the welfare of people. So that's one change, and the other is competition works when if you have a label market where people who are displaced as you highlight can be put back in another job of the same level and quality of as what they were doing fairly quickly um. And that's where I think we have evolved, and actually all economies we should do a big meya coupa, because we all talk about the benefit of trade for

everybody without looking and disaggregate. But that's changed a lot, and we're doing quite a lot of work actually on this to say it's there's no doubt competition openness is good, but there's no doubt either that it's hurting some people. And these people we need to take care of, especially if we look at the very low level of interest rates around the world and the fact that people expect them to remain low for for long term structural reasons,

at least for a while. That has changed people's view of what is a sustainable fiscal position for a government. You know, if you've got if you're paying less for your debt quite far into the future, you can probably afford to have more of it. If you were writing the convergence criteria or the fiscal rules for the European mirror Zone now they would be very different when they I mean even just in terms of what we think as a high debt level or an unsustainable that level.

So I agree with you that it would likely be different and at the very low rate for a long time change things. At the same time, I think if we're only here and off in this debate, is the initial what the initial level of debt is for some countries um, and some of them have very high debt and some of them we we still am, I think rightly. So we commented that they should actually be careful to

how much debt too. They've got just put it in conte. Sorry, but just if you mentioned the Japan example, I mean your Japan, it turns out now is have you know well over two GDP debt. We've always had a sort of thing in our mind that once you get into three figures, once you get sort of hundred, that's when things start to get beyond the pale. I mean, do you think even that has changed if we're looking at

the Japan situation or not. So, I think Japan is very specific, not only because that's cloth that if you look at the two GP ratio, it's it's a lot lower. Also, it's got a very spatial labor market where everybody is employed even if you know they don't have a job of the same intensity from one worker to another. The coesion of the society is very different from what we

see in Europe. Um. The advantage or the comparative advantage of your should be that there is a your area which is hanging all these nation states together and means that from a whenever one acts on a policy lever then it has an impact throughout the regions and that should minimize the positive or negative reform that anybody has to do. And I think that's where governments need to

get back to discuss. It's in their common interest. What surprised me talking to Bruno Lamire is there's going to be a whole chunk of the G seven finance ministers devoted to talking about just one company's proposal for a digital currency or a new global currency. The liber Facebook only produced this proposal a matter of weeks ago, and yet you have some of the most important finance mesites in the world spending quite a lot of their time

focus just on that. Are we getting to the point where these companies are as important or more important than some of those G seven countries. So I think there's one valid comparison, which is in terms of the people that that this company could be could be um, the share of people are using this company's application, right, and you have something Simili in China and that's also delivering a payments esteem and so that can give an idea

about what that means. Now, a proper money, as you know, has legal tender because it's backed by your state, which wouldn't be the case here. But at the same time it would affect quite enormous amount of people and it would have to be linked to the payment system. Um. So that's when it comes to Okay, if it's linked to the pavement system, how can it affect it, how can it affect other currency? What does that mean for finance stability? And in that respect, I think it's a

it's not only normal, but it's for once. As you were seeing earlier, it's very rapid the reaction of Finance Minister. So it's great that they're talking about it, said the G seven. Finally, you did mention this question of whether we're responding fast enough to climate change and changing our economy around to be I think it's probably a universal agreement that we're not any of us responding quickly now.

But I wonder whether you've thought about we talked before about the sort of reforms that have long been proposed to O c D and having to go back and maybe tweat them to make sure that they're not having inequitable consequences, you know, to think about the political economy.

Are you also thinking about that for the environment, because it struck me that a loss of I'm not sure I know the answer to whether you know combating climate change is going to be progressive or regressive for the income scale, but I kind of I think it's sort of important to know. Now you're absolutely right, So I couldn't give you the reasons because we've actually launched this a few at least on my side, a few weeks

and months ago. But what we're trying to do is exactly that we have what type of investment, which investment compared combined? So we with a carban tax, which one we know this has implication and the delusion as are here to remind us of that, and the speed of the transition, how fast do we want to go? What does it mean for people's job Because if you were in a cool mind, you're not going to do the same. Oh, in nuclear plant, it's not the same as working windmill.

How do you connect the energy that when you're able energy, you're creating what implications for the territories that's and all of them are going to be affected. So it's a it's a massive work we've we've started and I'll give you the answer next time we meet. Well, I'm but well, that's very encouraging. I'll have to make an appointment soon because I am glad to hear that. But I'm a bit worried if you, with all with the greatest respect, that the O c D is not always the fastest

to reach its conclusions on these grand questions. So keep putting, will look forward to get the answer. But I think it's something we're going to talk about more on this program. Laurel Spoon, thanks very much for coming on. Thank you, Steffany. That leaves so much to talk about on future podcast. Thanks for listening to Stephanomics. We'll be back next week

for the last episode of the season. In the meantime, you can find us on the Bloomberg Terminal website, app or wherever you get your podcasts, and please if you can take the time to rate and review our show so it can reach more people. And for more news and analysis from Bloomberg Economics, follow as Economics on Twitter and you can also find me on at my Stephanomics. This episode was produced by Magnus Hendrickson, with special thanks to William Horrobin in Paris, Bruno Mayor Laurels Boone and

Lawrence Spear of the O E. C. D Our. Executive producer is Scott Lambman, and the head of Bloomberg Podcast is Francesca Leaving