Laurence Parisot - Head of the French Business Federation MEDEF HARDtalk

Medecins Sans Frontier. Now it is time for HARDtalk. Where is the

leadership that can pull Europe out of its current financial and

economic chaos in? That is a question being asked with ever

greater urgency in a Germany and in France, the two most important

pillars of the eurozone. My guest today is Laurence Parisot, head of

the French business federation MEDEF, and a member of the Board of

the French bank, BNP Paribas. With its banks farmer will, its

President under pressure and is population restive, can France lead

Laurence Parisot, welcome to HARDtalk. Thank you. As I said,

there are many in Europe right now looking for leadership from France.

But is the real question, just how vulnerable is France in this

economic crisis? Not so much. What I mean is, all Europe is vulnerable.

The issue is a European issue, not just a German or French issue. Of

course, as you said, France is one of the most important pillars of

Europe. We have to address the problem. But we either find the

solution altogether, or it will be the failure of Europe. But it is

difficult to find a grand plan and come out with ambitious new

proposals for the future of the eurozone and Europe when you look

inside your country, as you do, as the head of a business federation

responsible for tens of thousands of businesses across France, and

you see lack of growth, joblessness, and an economy that is stalled.

You are right. I would also add a very difficult psychological

situation, the public opinion. The people wonder what will be the

future and are very anxious and nervous. That means that first we

have to be clear about what is the origin of the problem. And that is

debt of the European countries. Not only the Greek debt, but also the

French debt, the Italian won and so on. The first thing is that we have

to understand that we have to deal with this debt issue. We have to

overcome the problem. Then we will find a path to a more global

solution. Let's talk debt for a moment. And remember that you sit

on one of France's biggest banks, BNP Parabas. A very important back.

Why was it that in the summer when the first talks starter,

particularly in the US and the UK press about the potential weakness

of French banks, that he dismissed all that? You said the speculation

was nothing more than the orchestration of overseas interest?

I recognise that there is a problem because the European banks and the

French banks hold the sovereign debt. Let's be clear. How much

sovereign debt? If we talk about Italy, how much sovereign debt do

you hold? I cannot give you the figure. But you must know. Maybe we

do not have to say that directly. Enrique Europe, the banks hold

sovereign debt. This is very different from the US. -- in Europe.

They do not hold the US debt in the same proportion as the banks in

Europe have done do. -- have to do. That is why the banks are facing

difficulties. This is because they hold the sovereign debt. That is

true, and you do not want to tell me, but I have done reading on this,

and your bank holds many billion euros worth of debt. That is a

significant sum. A I emphasise that point. If we want to solve the

problem, first we have to address the public debt issue. If you focus

on the problem by saying that this is just a back problem, you will

not solve the situation. The situation comes first from the

public debt. Understood by the banks have a duty to be transparent

about what kind of debts they hold on to. The people of your country

need to know, given they would like to think you'll bank is safe for

the future, what you're going to do to recapitalise the bank. Do you

think that Italy or France will one day defaults? It is impossible.

France is one of the biggest countries in the world. It is true

we have to manage a fiscal consolidation. But we will not be

false. You just mentioned Italy. Is it really impossible that Italy

could before? A national debt over 100% of GDP? This is serious but

Japan is holding 200 % of GDP since years and they're still very strong.

I think we are at exaggerating the problem. That is why I said that in

August, just after the US was downgraded, we saw all the Anglo-

Saxon newspapers, a lot of commentaries saying that the

problem was coming from Europe. They were saying that the US were

not the problem. But I consider that by doing that it was a self-

fulfilling prophecy. Everyone thinks that the problem is Europe.

But I think it is exaggerated. is the counter case for --. For a

long time we have had the feeling that Greece will not default. Now

it seems they must default. Other people said, banks have been

stressed tested and will not go under. We have just seen the Dexia

Bank, which is partly owned by France, and Belgium interest. That

has gone bust and had to be fair that. People say things will not

happen but they do happen. I wonder that, as a director of BNP Paribas,

how you tell your people that his bank will be made safe for the

future. I am pretty sure that this bank is 100% safe. What about

capital ratios? They are not as high at your bank as they are at

many other international banks. On the contrary. BNP Parabas always

said they will meet the new Basel III ratio by the end of next year.

By the end of next year! There is a crisis right now! It is 9%! 9% of

capital ratio! Some major American banks do not have this ratio!

President Jose Manuel Barroso look at this question of capital ratios,

that is the amount of readily accessible cash banks have in

proportion to their balance sheets. He said it is not adequate and

until it is banks should not be able to pay dividends to

shareholders, should not be able to pay the vast bonuses to their staff

until they raise these capital ratios higher. Of course. Since the

beginning of September, things have changed. The markets have fallen.

The situation is changing every day. The problem is that governments and

the European institutions were not able to decide to act to settle a

new agreement between the different governments. Each day the crisis is

worse. That is the uncertainty. The system that affects all the

businesses you represent. A final question about banks. In France

officials have made it plain that they believe it recapitalisation of

the big banks has to happen it will come from the French government. It

will not be funds drawn from the eurozone stabilisation fund for the

ECB. My question is, if that is the case, how can France hang on to its

AAA credit worthiness rating? We're talking about vast sums of money.

The French government will have to put into its banks to guarantee

their long-term security. I hope that if we have to recapitalise the

French banks, I hope they will be able to raise capital on the

markets. All with private partners. I hope we will not have to go to

the public gate and asked for public funds. The only problem is

that French banks have lost half their share value recently.

Injections of cash is unlikely. This is a vicious circle. If we

raised public funds, come that means the debt of the state will

increase. If that happens, there will be a problem for the capital

ratio of the banks because they hold the dead. We are creating a

initial -- a vicious circle. -- they hold the debt. Do you see a

way out of it? Yes. The way out is we have to extinguish the fire by

saying that that the stability fund must be able to repurchase

sovereign debt or to help the banks. At the European level. And secondly,

at the same time, the Europeans governments have to say they are

ready for a more integrated Europe, that they are ready for a new

treaty, that they are ready for a new economic governance. We really

need this signal. Today we think that... If we want to stay in power,

we have to go further. You keep saying that we need to, but the

problem is that the European public do not seem to buy your argument.

You are right, but they could not buy the argument. Governments and

decision makers do not speak to the public. They do not tell to the

public what is happening. So, you want one Treasury for all of the

eurozone? One system of economic governance so that tax rates and

public spending is set from Brussels and Frankfurt? Never mind

if that is acceptable in Athens or Lisbon, is that acceptable in

Paris? It is fifty-fifty. Just imagine if we did the opposite. We

give up the Euro, we go back to a very national way of thinking about

the economy. At the same time globalisation is spreading and the

emerging countries are more and more powerful. We will lose

everything. We will lose everything. If we want to stay countries with

prosperity and power, we have to move forward. And that will take

many years. In 2005 the French public rejected a referendum on a

limited treaty change, a constitutional treaty change.

rejected that because there was no real debate about the future of it

-- the European future we want. They rejected the for internal

political reasons. It is a moment of truth. It is an urgent moment of

truth. Your recipe for a long-term, radical overhaul of the way the USM

and the EU works may and may not be fine but whatever is it will take

an awful long time. Let's consider where France is in the short-term.

Your job is representing business in France. What is going to get

We need to conduct structural reforms. To boost growth. Two years

ago France was able to go through a very important reform, the pensions

reform. I am pretty sure that we are able to conduct some other

structural reform, healthcare for example. A more flexible job market.

Sarkozy shows no interest in pushing new structural reform. It

took him a large struggle to get through his limited pension reform.

He moved it from 60-62 when the requirement date in the UK is 67.

He did it. He did it without the sense of impending meltdown that we

have today. French people are wary. Look at all the polls. Sarkozy's

approval rating is lower than ever before. Do we think he will go on

another round of reforms? First of all, everybody has terrible polls.

There is no good rating for any government. But you know that we

are in a presidential campaign. This is the beginning of it. You

can counter and business people to debate the presidential campaign.

These structural reforms are part of it. President Sarkozy was the

first since Francois Mitterrand to be able to conduct a those reforms.

We want to keep this brief. There are a lot of different questions on

the French economy. Are you disappointed with the degree in

which President Sarkozy has failed to deliver on his promises?

France is not easy. We have some difficulty sometimes to implement

reforms because it is quite easy to have demonstrations in our country.

And you have strikes today. The limited austerity package of the

last few months is provoking another round of public sector

strikes. It was not very important. The austerity package is enough to

respect our engagement in terms of budget. Not if uour growth figures

are wrong. They are being revised down all the time. It seems to me

to be living in, if I can put this politely, a fantasy world. You are

an opinion pollster as well. You run one of France's leading opinion

polls companies. The clear majority of the French public are against

what they call the capitalism of globalisation. The Socialist Party

is having a debate, in some senses led by a candidate who is calling

for deglobalisation on the far right of French politics. We see

traction for the message that globalisation has failed France.

This, rather than economic liberalism, is the mode in your

country. You're right. This is a danger. This is 50-50. At the same

time we have also lots of people who say that they love the

companies they work in. They think than this is very important to

support small and medium-sized companies because they create jobs.

I know you respect polls very much because you work for a polling

organisation. Far more Chinese people think capitalism works well

today than French people do. I know that, but in the French point of

view there are two things. The theoretical point of view and on

that, yes, we are reluctant about capitalism. But there is also the

practical point of view and on the practical side we're very happy.

EADS is producing the best planes in the world. With Airbus. We are

very happy with some important companies. For example we are very

supportive of AREVA for our nuclear energy. You're choosing companies

which are national champions where the French government has also in

the broadest way projected these companies on the international

stage using French government support and help. Is that still the

French model? Far from really liberalising the economy you're

making it an Anglo-Saxon model. do not support this model. I think

it is time to invent another model. A more Anglo-Saxon model? More

Anglo-Saxon. Do you think you can persuade the French public of that

even when they seem to be absolutely opposed to it? Yes, but

I think the Gaullist model is the model of the politicians from the

right to the left. And what the public opinion says is what they

hear from the politicians. That's why more and more business leaders

like my counterparts, we want to go into the public debate. The French

business confederation that you chair will be very active in the

presidential debate. We will put this in some TV shows. We will give

our own views. Have you already decided, given the nature of debate

on the socialist and the far right side and the Front National, that

you will support Sarkozy for election? It is much too early to

say that. You know what the policies are of the others.

Protectionism is a way that is now routinely used in French politics.

Yes, but we do not know yet who will be the Socialist candidate.

And we do not know yet what will be his programme, his project. And we

do not know anything either about the new vision of Nicolas Sarkozy.

I suppose that during the campaign he will propose. So I do not want

to say today that we will support this or that candidate. We have to

wait. Are you worried that protectionism and cutting France

off and maybe even Europe off from the globalised economy could be a

major trend in this election campaign? Yes, I am worried about

that. It could be a trend in the French presidential campaign. Also

in the American presidential campaign. I am because at the

global level we see countries and political parties asking for global

protectionism. We see a very inward-looking France. Yes, and

that is why I published a book recently. I think the far-right

political parties and the leader of the far right, the National Front,

Marine Le Pen, her ideas are very dangerous for the economy and

democracy also. Few polls would suggest for one second that she

will be the next President of France. Suspicion of globalisation,

a belief that protectionist policies have to be used in France.

These ideas to have traction. I just wonder how worried you are

about the future of the French economy, given the political mood

of the French people? I am worried if we are not able to explain that

these inward ideas, the temptation of nationalism, to argue, if we are