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A Conversation with Pierre Moscovici

Speaker: Pierre Moscovici, Minister of Economy and Finance, French Republic
Presider: Robert M. Kimmitt, Senior International Counsel, WilmerHale
October 11, 2013
Council on Foreign Relations

KIMMITT: Good morning. My name is Bob Kimmitt, and it's my pleasure to welcome you on behalf of the Council on Foreign Relations to this morning's conversation with the minister for the economy and finance of France, Pierre Moscovici.

Thank you for joining us, Minister, and welcome.

What a difference a year makes. At last year's annual meeting at the World Bank and the International Monetary Fund, Europe's sovereign debt crisis was the central concern. The communique of the IMFC started with the situation in Europe, expressing concern, but also noting the movement forward with the ECB Outright Monetary Transactions program and the launch of the European Stability Mechanism. At today's bank fund, meetings, concerns will center more on the U.S. debt limit debate and government shutdown.

European leaders realize, however, that though their sovereign debt crisis may have abated, and the eurozone showed growth in the second quarter of this year after six quarters of contraction, concerns remain about fiscal stability and sustainable economic growth. We are fortunate that Minister Moscovici has taken time from his crowded schedule -- and believe me when I say crowded schedule -- none is more crowded for a finance minister than during Bank-Fund -- to start the day with us and address these and other topics of interest to you.

You've received the minister's impressive curriculum vitae showing his extensive involvement in both French and European affairs for decades. I would note only in addition that since assuming his position in May of 2012, he has been at the table for all key meetings of the G-7, G-8, G-20, Ecofin, and the Eurogroup, the epicenter of deliberation and decision-making in the eurozone.

Mr. Minister, we look forward to your presentation and the discussion to follow.

MOSCOVICI: Thank you, Ambassador.

Ladies and gentlemen, good morning, and thank you for being here today. I'm very pleased to join you in this discussion. As often as my schedule allows, I accept invitations from think-tanks in France and abroad, because it's very important for us politicians to have this kind of exchange with the people who are able to think out of the box.

I could start this conversation with the same reflection that you made a minute ago, what a difference a year makes. I'm the French foreign minister since May 2012, and I remember my first visit was here in the U.S., with President Hollande, meeting President Obama, just two days after his installation, because he was on the move to a G-8 and NATO summit in Chicago. And then we moved to Los Cabos for the first G-20 meetings we had to attend.

And I remember what the ambience was. It was all about Europe and about euro. Everybody asked us, is the euro going to exist in six months from now? Is Greece going to get out? And obviously, we felt as the sick man of the world economy. Remember, in Los Cabos, meetings of crisis with President Obama, Madam Merkel, Mr. Hollande, Mr. Rajoy, Mr. Monti at the time, and the finance ministers around Tim Geithner, looking all the time for solutions.

And a year after, there is almost not a word about the euro in the final communique of the (inaudible) summit. So things changed. Things improved for the eurozone and other kind of problems raised elsewhere. I'm not talking about the U.S. economy for the present time.

But today, I'd like to talk to you briefly about how France is turning around its economy and a Europe that's finally seeing the light at the end of the tunnel. And this may also be for me an opportunity to rebut some widespread assumptions. France is on the move. So is Europe, for that matter, and particularly the euro area.

However, it's true that this motion looks like tectonic plates. It's deep. It's slow. It's not always visible, or visible enough. I know from experience that changes in the old continent may go unnoticed, especially seen from here.

First, a word on the situation of France. To illustrate the changes in progress in my country, let me start with the draft 2014 budget that I officially presented to the Council of Ministers, administration, and the parliament two weeks ago. I don't want you to believe that my presence here is a sign of my reluctance to defend the budget before the parliament...

(LAUGHTER)

... although it's always a tough task. Our budget is robust and fully reflects the approach we've followed ever since President Hollande was elected in 2012.

What is in this budget? First of all, a reflection of the historic reduction in labor costs that we have implemented in support of our key objective, namely restoring the competitiveness of French business. We made the diagnosis that we suffered from a deficit of competitiveness, a lack of competitiveness, and in a word, we have chosen to reduce labor costs by 20 billion euros a year, which represent 6 percent of the labor costs, through a system of tax credits for business. And the 2014 budget embodies this historic ambition, which is already helping France to narrow the labor cost gap with its major European partner and friend and competitor, Germany.

The draft budget also includes many other measures to promote competitiveness. For example, it contains the latest in long series of decisions I've made to revamp the financing of our economy. I'm referring to a reform of saving regulations that will make it easier for firms to access to new sources of equity financing.

This is in addition to all the other measures concerning the financing of the economy that we have taken in the past year-and-a-half. We have reformed public mechanisms to support budget financing, notably through the creation of a public investment bank, which works alongside with private investment banks. We have introduced measures to support cash flow. We have channeled savings and investment to small, medium and mid-tier and prices by diversifying their access to financing.

In parallel, we are bolstering this plan to restore French competitiveness with a major improvement in the regulatory environment for business. In the past, France lawmakers have sometimes displayed rather unbridled (ph) creativity in this area. What we want is to stabilize and to thin down the legislative framework. And that's what the president called a streamlining shock in order to reduce the wait of legislation from the French administration in order to make it easy for business to work. This is about competitiveness.

Second orientation, the 2014 budget reaffirms France's commitment to balancing its public accounts. Let me give you some numbers here, not too much, but some. We inherited as a very tough situation as far as public finances are concerned with 600 billion euros of additional debt in five years before we took office. And the deficit in 2011 stood at 5.3 percent of GDP. And if nothing would have been done, it would have been the same for 2012.

We are reducing this deficit 4.8 percent in 2012. It will be 4.1 percent despite almost zero growth for this year, 3.6 percent in 2014, under 3 percent, as we are committed to through Europe, in 2015. At this point, you are going to tell me, if you are raising taxes to balance the account, your plan might be moderately effective. Well, this is why we are changing the cost -- the costs of the effort, as far as reducing budget is concerned. Now we work through cuts in public expenditures. They represent 80 percent of the effort planned in 2014, taxation being 20 percent, and what we want to do is to have 100 percent cuts as a part of the effort in 2015. That's our budget programmation.

At the same time, we believe that fiscal stabilization should be conducted at a pace compatible with changing economic conditions. As you may know, the European Union requires from euro area countries to make significant progress towards medium-term budgetary objectives for the budgetary balances and to hold the nominal deficit below 3 percent of GDP.

We were supposed to do so in 2013. I negotiated with the commission, and especially with Commissioner Olli Rehn, which you -- whom you may know, that France obtain a two-year extension of this deadline, not because we were not ready, but in order to let the automatic stabilizers play their role and not to kill growth in France and in Europe.

In the negotiations, we were helped by the evolving international consensus on the right balance between austerity and growth. And things probably happened here in Washington in the meetings of April, and we, I must say, feel very close in the debates to the Obama administration. And I work in very close contact, of course, with Tim Geithner yesterday, with Jack Lew today. The U.S. and France defend positions which are quite similar, which is to say what we lack now is that 1 percent, 2 percent growth a year, and we need to foster growth. We need to, of course, go on with fiscal consolidation, but at a pace and under conditions which are compatible with growth.

The third component of our budget, but through the budget I tell you what we're doing, of course, is contained in the financial provisions that immediately follow it and cover the field of social spending in France. It consists on a set of structural reforms, the first of which is pension reform. We conducted this much awaited reform to restore the financial system, basically, of our pension plans. And the adjustment that was decided to implement will be divided evenly between reductions in expenditures and increases in contribution for everybody.

This is not the only structural reforms that we are conducting. It's not, obviously, the last. I will mention a few of them. I talked about competitiveness and reducing the labor cost. I talked about reducing deficits. I talked about reducing the amount of public expenditures.

I should also -- and I will -- talk about reform of the labor market. We drive the most important reform of the labor market, led in France in the last 40 years, in a dialogue between the business and the trade unions. We finally found an agreement between them, which was translated into legislation in order, as well, to secure the personal situation of the workers and to give more flexibility for the firms when they have to adapt. I know that it is part of the image of France to have a not flexible enough labor market. We are moving through what is called in the northern countries of Europe flex security, flexibility and security. Among these are major structural reforms.

I also want to mention what we call government modernization. The process of government modernization will enable us to review all public policies by the end of our term in office in 2017 so that, through evaluation, we can lead intelligent cuts, because if the cuts are unintelligent, it creates resistance and no efficiency. These initial assessments have already enabled us to identify savings that are incorporated in the 2014 budget.

I give you just one example. I know you will sound terrified, but I will still do that. We -- we found that there were in the legislation over 7,000 different business support mechanisms, 7,000. And we're reducing that, and we will save 1.5 billion euro in 2014. We also want to reform the policy on family.

In short, our draft budget focuses on three priorities, which are the priorities of the action of President Hollande and the government, first, support to competitiveness; second, sustained, yet pragmatic fiscal adjustment; and, third, a set of structural reforms. This is the way to change France, also with social justice, and to -- an action to reduce inequalities, which is, of course, a major cause for the government. But we want at the same time to maintain our social model and to reform it very deeply. That's what the government is committed to.

There's one key component I didn't talk about of our economic policy which I'd like to mention here in order to end with my speech. It's Europe. To give you an idea as a finance minister, but you mentioned that, I spend, I would say, a third of my time -- or maybe more -- on Europe, as well in Europe and here, abroad, in G-20, G-8, G-7 meetings. The European dimension, to me, is so important in the lives of the euro area member states. That it is not an international issue, it is a domestic one. France and Europe are the same. There is an absolute continuum between the two dimensions when you come to public policies.

To evaluate France's attractiveness without the European dimension, to address France's economic recovery without the European dimension, to envision France's future status in the global economy without the European dimension makes no sense.

I'd like to share some random observations with you about this subject, to which I must confess I am passionately committed. The first is that the euro area is in a better shape. The peak of the crisis is behind us. There is no more existential crisis. The questions raised one year ago do not exist anymore. Yes, Europe will survive. No, Greece won't get out. Yes, the integrity of the eurozone is saved. Yes, we found tools in order to address those tough situations that we faced during those last five years.

And, yes, we are making also progresses in order to the banking union. And I want here to pay a special tribute to the European Central Bank, which obviously played a major role in order to stabilize alongside with the Eurogroup the situation in Europe.

The question is now, there is no more crisis of the eurozone. There is a crisis in the eurozone, which is a crisis of the lack of growth. And we must consolidate these early and still frayed (ph) signs of improvement. You mentioned the fact that we went out in the recession after six quarters of a year of consecutive negative growth.

I'm not pessimistic. I think we can reach this goal. I'm convinced not only that we shall attain it, but that the euro area will emerge both deeply transformed and stronger from this crisis. I know Europe well. I've devoted a large part of my political life to this during the last 20 years. And even today, Europe is a central concern to me as a finance minister.

Europe is a project that we are building step by step. The conditions are difficult. We are not a federal state. We are what Jacques Delors, former president of the commission, called something like a federation of national states, which means that our decision-making is complex. We have to decide all together at 17 -- tomorrow, 18 -- members of the Eurogroup, 28 members of the greater union, with different cultures, different political cultures, too.

And I think that we are in a phase of a new integration for Europe, and I want, finally, to spell out the priorities that France is urging its partners in order to achieve success. Further diagnosis, one sentence: The euro area's problem today is that it is an effective and integrated monetary union. It is not an economic and political union.

France has I think a pretty good idea of what's needed to finish this great, but unfinished task. First, we must definitely and collectively define pace of this core consolidation, compatible with economic conditions. I've already talked about this. I won't dwell on it here, except to say -- and this is one very important observation -- if we compare to U.S. and Japan, Europe has the weakest growth, the highest unemployment, the lowest deficits, and a trade surplus. So it means that our policy mix should be more vigorous in a way.

In parallel, we must create the conditions for a lasting return to growth, and this requires to restore the economic financing channels, and this is why banking union is so important. Banking unions means putting an end to the financial fragmentation of Europe. We must do that, and we must achieve that before the end of year 2014.

Still, we won't make European integration meaningful again only by addressing the financing of the economy. We also need to work on politics. And I want to end with it, to give you maybe two or three proposals of political integration of the eurozone, which are necessary in my view.

First, France is on the view that we need to have a euro area-specific budget which should be designed. It's a part of, I would say, budget federalism in Europe, in order to play countercyclical role, especially in some social fields, like to help those who are unemployed.

In parallel, as we restore (ph) clarity to E.U. political institutions, which are responsible for safeguarding our common interests. And then again, France has proposed two innovation, first, the establishment of a euro area chamber in the European Parliament to co-legislate in the EMU's interest; and, second, the creation of what I call, to be brief, a euro area finance minister, a permanent and exclusive Eurogroup chairman.

I will take an example. Today, the chairman of the Eurogroup is not in Washington, because he has to lead very difficult talks in his country, Netherlands. It's not a problem with him. He's a friend, and he's doing the right job. But if we have a permanent minister of finance, well, this question does not exist. We need to have that permanent representative, and the guy or woman who can coordinate the action in Europe and especially in eurozone.

What's our stake here? Of course, it's the economy, but so is democracy. And one last word about that. As you may know, we've got European elections next year. There will be also the renewal of the commission. All institutions will be renewed in 2014. And in France, as in Europe, there is a rage of the far-right and the populist parties which are anti-Europe and anti-euro movements, and this is why, frankly, Europe and France, because France is at the heart of Europe -- France is the second economy in Europe -- France, with Germany, is the driving engine of Europe. It doesn't mean that when France and Germany get along things are perfect, but if they don't, nothing happens in Europe.

So for us, there is this main fight against populism, and the only way to win this fight, which is decisive for democracies, is to deliver, to deliver results, to deliver results on growth, on jobs, and that's what it is about. That's why France is reforming. That's what Europe is moving. And that's what we must do together.

Thank you.

(APPLAUSE)

KIMMITT: Minister, thank you for that very comprehensive and detailed presentation. Your presentation, particularly on the budget, reminded me that the only G-20 finance minister who isn't also a budget director is the U.S. treasury secretary. It used to be that those were combined and then broken out first to the Bureau of the Budget, now the Office of Management and Budget. So...

MOSCOVICI: That's not totally true.

KIMMITT: Really?

MOSCOVICI: I think that in Germany, too, the function is partly divided, but you know that better than me, Ambassador.

KIMMITT: Well, the presentation in the German Bundestag is also made by your colleague and friend, Wolfgang Schauble. There is, of course, very active involvement on the part of other ministries, which have in some cases, the domestic ministries, much larger budgets. But it was really in a way a compliment that you're doing all the budget work and then all the work traditionally reserved to our treasury secretary in the various bodies that were mentioned.

I think it was a really important message that France is on the move. That's important for France. It's important for Europe. But it's also important for the transatlantic relationship and the global economy. So before turning to the audience, I might just ask two questions, first, a transatlantic question, and then maybe a global question.

On the transatlantic side, we are in the midst of negotiating the Transatlantic Trade and Investment Partnership. Karel De Gucht yesterday called for the creation of what he called a Regulatory Cooperation Council that would be part of the agreement. To what extent are financial services issues going to be part of the TTIP negotiations and then maybe this Regulation Cooperation Council going forward?

MOSCOVICI: I would be careful about this question, first, because I'm not the trade ministry, and we have a foreign trade ministry -- minister who is dedicated to this question and, second, because these negotiations is only starting. We know that it will be a long, hard negotiation. But it has to be global and to include all the dimensions of our relationship throughout the Atlantic.

The only thing I want to say, which is not a direct answer to your question, is that France enters into this negotiation -- and this might be new -- with a positive mind. We think that reaching a good agreement would be or could be of common interest. In the past, we had that kind of project, which never led to an agreement, and (inaudible) France was quite reluctant.

We are not reluctant. We are careful. We are careful of our own interest. We are always careful about culture. We are careful about agriculture. We are careful about investment. We are careful about access to public markets. But we are in positive mood, and so we are ready to discuss globally with our American friends, such as we did with our Canadian friends. The negotiation is not absolutely over, but -- well, we are, I think, on the right direction. It's up to each part to make the right concessions in order to find a good compromise.

KIMMITT: Global question. For at least the past 10 years, in communiques of G-7, G-20 finance ministers, and now leaders, even in APEC communiques, there's been a lot of attention on the Chinese currency and the need to appreciate the currency, have it valued by underlying market forces.

In the U.S. now, there is a growing debate about the Japanese currency, with over 200 U.S. legislators suggesting that currency should be part of the Trans-Pacific Partnership negotiations. My guess is that there will continue to be comments about currencies in G-7, G-20 communiques. Is the question of Japanese monetary policy coming higher on the agenda?

MOSCOVICI: Obviously, everybody is looking at that. But at the same time, we don't express at this stage preoccupations. We had yes, you know, these meetings here in Washington or a series of meetings between finance ministers and, as you know, French finance minister is in each meeting. Yesterday night, we had the G-7 meeting, and we had the G-20 meeting of those assemblies. And it was not at the heart of our discussions.

But what at the heart of the discussions is growth, how to consolidate growth. It's always delicate for us to speak about the currencies. The general view is that the currencies finally must reflect the economic fundamentals of one country or another country. And this also applies to Japan. So I think there will be a follow-up of this question in times being. And the G-7 probably will be or would be the right place in order to make some comments and necessary actions.

We did that last year, but this year, no, there is no special rule for that in the communique. There won't be.

KIMMITT: Thank you.

MOSCOVICI: And it was not the heart of our discussions yesterday night.

KIMMITT: Yesterday, OK, thank you. We now invite audience members to join the discussion. What I'd like to do is have you raise your hands, if you would like to speak. Please wait for the microphone. Speak directly into it. Also, if you would please stand, state your name and affiliation, and, of course, as always, keep your questions and comments concise so we have an opportunity for plenty of people to participate.

David?

QUESTION: David Merkel with Summit International Advisors. Mr. Minister, thanks very much for your comments. I'd like to gain a little bit more of your wisdom on Europe, and specifically on enlargement of the Eastern Partnership. The question is simply, is Europe as attractive to prospective members? And has Europe regained an appetite for further enlargement? Thank you.

MOSCOVICI: Is Europe attractive? Yes, obviously. There are always some new candidates. We just ended with Croatia. We are negotiating also with Turkey. Serbia is waiting. And we gave a quite positive approach to the possibility of a candidacy.

I was a European minister in the '90s at the time when we negotiated the big enlargement of 12 and then 13 countries in the eurozone, in the European Union. And I'm fully committed to that, maybe that because myself I'm from both Polish and Romanian origin. My father was born in Romania, and my mother just born in France, after her parents came in this country.

And I think that it is a major achievement that we were able to reunify Europe after the shift of the Cold War and the fall of the Berlin Wall. And I dedicated a lot of my efforts to do so. When I came back in the European Parliament in 2004, as the vice president, I was a rapporteur for the accession of Romania. This is a kind of irony of a personal history.

But, well, there we have this great Europe. We first need to consolidate, including political (inaudible) eurozone. I'm quite convinced that this is the heart of Europe. And I'm also convinced that every European country has the fate to become once a member of the euro area. If they don't say no, it's -- I would even say the normal way to become at one stage a member of the euro area.

And the euro area is enlarging, as you know. We will be joined by Latvia, and then Lithuania could come on, and maybe other members in the years to come. Today, Lithuania is the chairman of the euro -- of the Europe -- as chairman of the council.

What I must say is that, if the -- Europe is still attractive for new candidates, we feel globally that there should be a time of a pause in order to strengthen the Europe as it is and to get ready to more enlargement, because populism, which I talked about, feeds from the rejection of new member states, feels or so from the rejection of what is seen as foreigner.

And I think that the priority for us is that the present Europe delivers. That's the priority. That doesn't mean that there won't be new members. Personally, I think that the right size for the great Europe is 35 to 40 members in 20 or -- 20 years from now. But we must be careful about that, and we must really ask from those countries who are candidates to fulfill all the criterias. This is true for Serbia maybe tomorrow. This is true also to Turkey, which, you know, is a delicate matter. Personally, I'm one of the scarce European actors who believe that the fate of Turkey finally is in the European Union, but it will take time, and it will be difficult.

KIMMITT: Allan?

QUESTION: Allan Wendt, formerly with the Department of State. Mr. Minister, you painted a very optimistic picture of the E.U., and the euro in particular. But is it not possible that, once again, a crisis will emerge, if the disparities among the different European economies -- say, between the northern tier and the southern tier, reemerge? And is it really possible over time to maintain a common currency in the absence of truly central institutions, such as we have in the United States, with a common budget, a central bank, and huge internal transfers between the richer parts or the country and the poorer parts, that people aren't aware of because it's all disguised in the federal budget?

MOSCOVICI: I do agree with what you say. You know, what I meant is that there is no threat on the short term for the explosion of the eurozone, for the default of the eurozone, or for a default of a single country in the eurozone. And, frankly, if you compare to what happened a year ago, it makes a huge change.

But it was precisely the matter of my proposals to say that, well, now we have the monetary leg. We need to build the economic and political leg, which means that there cannot be so huge disparities forever in Europe. We've got to give each other, to give one another the capacity of acting for solidarity in this euro area.

And, second, we also must build a specific budget and specific institutions for the eurozone. And this is what would make sense with the euro. I was in the very room when it was decided the launching of the euro in '98. And it's a great achievement. It's a recent one. It's not absolute that we have some difficulties to establish, what will be the equilibrium, but if the euro wants to be what it should be, a political project, then we also need to have economic tools and political tools.

This is what my proposal of specific chamber in the European Parliament is about. This is what my proposal of a budget for the euro area is about. And this is what my proposal of a finance minister is about. But I would add one thing, which is decisive, is banking union. Today, it is absurd that we have the same currency but, if you are in one country or another, to make the same inner investment, you don't pay, but when you're a business, the same interest rates. And this is why we need, really, to speed up and to reach a global banking union by the end, again, of the year 2014, decisive.

KIMMITT: OK. Yes, please?

QUESTION: Kevin Sheehan, Multiplier Capital. Mr. Minister, you talked about the importance of growth in France, and, of course, that's tied to the growth of small and medium businesses, which are an engine for growth. Could you say a bit about France's programs to encourage small businesses in France? And putting a point on the question, if I'm a young European engineer, why should I come to France to build my software company?

MOSCOVICI: First, certainly encouraging SMEs is a top priority for the government. I spoke about the public investment bank. Being in the U.S. (ph) can create (ph) incomprehension (ph) about what a public investment bank is. It's just a bank dedicated to support the projects precisely of small and medium size and also mid-tier enterprises.

What we want to do through that is to encourage them to innovate, to export, and to build what our German friends have and we lack, is it's called a middlestag (ph), I mean, a tissue (ph) of enterprises which are precisely capable to innovate and export.

And I also led a whole bunch of reforms in order to help those small- and medium-sized enterprises to get access to markets, to financing, I would say (inaudible) for whatever their needs are.

And lastly, we want to orientate the important savings of the French towards investment and not to have them sleepy. We are also giving some statues for young innovating enterprises, helping them to raise the cost of labor and the weight of social charges, to which they are exempted for eight years, if they are really innovative and developing research.

To answer your question, I just give you an example. I was last Monday -- in France as finance minister, I tour through the country in order to defend the economic policy in town, the 16 town (ph) in France, which is not so big town, because we just have 65 million people there. I would say 150,000 people. It's called Angers, softest (ph) -- one of the softest (ph) places in France, and happier place to live.

And I visited a truck factory, which is called Scania. It's not French, in Swedish and German owned, because Volkswagen is a shareholder of Scania. And the worldwide chairman of Scania came there to welcome me. I was very honored by his presence.

We visited the plant, about 700 people. And finally, the Swedish management -- they are not people who are philanthropic. If they're there, it's for their own interests -- told me, here we find a high quality of infrastructures, high quality of public services, really skilled matter (ph), and also a qualified people, and an overproductive quality of work. And he said, we are here for 20 years. It's one of our main attractions out abroad. We want to stay. And in three years from now, we will implement 150 more people there.

And you know that France is one of the main directions for investments from the United States. And as the ambassador (inaudible) told me yesterday, we had some, well, flat period, and now things are getting better. We want to help all the investors who come from abroad to establish in France. We fight for the attractiveness of this country. This is my answer.

KIMMITT: Same row, two down, please. Yes. Excuse me.

QUESTION: Hi, my name is Porter McConnell, and I run the Financial Transparency Coalition, of which your government, your Ministry of Foreign Affairs, is a member, as well as several NGOs and experts in the area of illicit financial flows. I just wanted to thank you, first, for your leadership in addressing crime, corruption and corporate tax evasion by cracking down on illicit flows, especially in and out of tax havens. Really appreciate the leadership role that your government is playing.

As you know, European Union anti-money-laundering directive is being revised in the coming months, and on the table is transparency of beneficial ownership of companies. So I guess my question to you, and the question before the council, is whether those registries should be public. And I wanted to get your views on that.

MOSCOVICI: My answer is yes. As you know, the French government is dedicated to fight tax evasion, fraud. We're, with the German government and the British government, one of the first governments to support the initiative by OECD on bets on tax erosion basis. And we fought in the G-20 meetings in order to get the automatic exchange of information, fighting banking secrecy as an international -- international standard, in order to have that as soon as 2015.

We are decided to sign the FATCA agreement with the U.S. I was supposed to do that this afternoon with Jack Lew, but unlucky the shutdown doesn't authorize that, but it's just a question of weeks. We will do that -- everything's ready.

We are invocating for a European FATCA, meaning exchange -- automatic exchange of information at the level of the European Union, and we are deeply committed to have good progresses in the anti-money-laundering directive, because the main word, the key word is the one you're fighting for, is transparency.

KIMMITT: I would just point out that, since the G-20 started meeting at the leaders level in November of 2008, while obviously initially there was a great focus on the crisis, subsequently putting structures together, Financial Stability Board and others, in each of the leaders' communiques, as well as the work being done by the finance ministers and central bank governors, there has been each time a very strong section on compliance and enforcement. It's only coming to the fore a bit now, as the crisis recedes, that those who are interested in this subject might want to look back through those consistent communiques on this subject, because the degree of cooperation and information-sharing between and among the agencies now is an unprecedented level.

Yes, Jim?

QUESTION: Mr. Minister, thank you for your remarks. Jim Hoagland, the Washington Post. I wanted to ask you to link up two of the concepts you talked about at the beginning. One is French competitiveness; the other is the European dimension. If you agree with analyses made by Jacques Mistral and other French economists, much of the loss of French competitiveness over the last 10 years has been very specifically made up by the gains in German productivity at the same time.

How do your plans on competitiveness deal with that particular dimension, the French-German dimension, of investment and the changes you're making? And, secondly, although it's speculative, I wonder if there are elements of the German election results that will affect -- either positively or otherwise -- your plans for competitiveness and the economy in general?

MOSCOVICI: Let's have a look not only one year ago, but 10 years ago. I was a minister in the Jospin government from 1997 to 2012. I'd just say at the time I was a young minister. That's not exactly the case today. I was the European affairs minister, and I'm not so old, but I was very young.

(LAUGHTER)

And when we left office -- it was 2002, under dramatic circumstances, because Mr. Le Pen was qualified for the second round of the election, and Mr. Jospin, who had been prime minister with good results, was out of the second round. If you look at the performances, France versus Germany, everybody said Germany is the sick man of Europe. That was the case.

Then, Gerhard Schroder launched a very ambitious set of reforms, and 10 years after, one -- one figure resumes their loss of competitiveness with France. Ten years ago, we had an accident (ph) in our foreign trade, although weak, something like 4 billion euros. Now we have 60 billion euros deficit, whilst Germany has an accident (ph) of 170 billion euros.

Which proves that -- well, they developed their industry. They oriented it to exportation. They found the right markets. We could not make it. Also, being quite innovative, with a good quality of research, a good quality of -- and trained people, we lack competitiveness.

And this is what the diagnosis we made was about. And this is why we acted for the first time in the last 20 years on reducing the labor costs with this tax credit. It's not anti-German. We're not fighting the Germans. We are not imitating the Germans. But what we want to do is clearly to raise our competitiveness, including towards the Germans.

I will just take an example. I'm a politician. I'm a member of the French National Assembly, now a minister. I'm elected in the part of France where you produce cars, Peugeot. And if you look at the performances between Peugeot, Renault, and BMW and Mercedes, you see that, well, that the products are more adapted to world demand.

And so we need to raise the quality of our products, to diminish the costs of labor, to innovate in a better way, to sustain the action and plans of SMEs. It's a very ambitious plan. And also to simplify the legislation, we know it will take time. We are not going to reduce the gap in a year. But as I said, it's a question of 10 years.

What we want, for example, is to have a zero deficit on foreign trade at the end of Mr. Hollande's mandate in 2017, if you don't consider energy, which is a specific problem. So this is what our policy is about. We are not sacrificing our social model. We are not acting as the Germans. But we want to speed up on reforms and competitiveness in order to defend our industry and to also innovate, especially (inaudible) this is what the project is about.

And I think that a stronger France is also an asset for Europe and for Germany. As you know, Ambassador, I'm very good friends with Mr. Schauble, the present finance minister of Germany. And he always tells that he doesn't want Europe dominated only by Germany, that he needs a strong France. He's sincere. And you need to have a strong Germany and a strong France, together, in order to strengthen Europe.

For the coalition, I will wait for the result of their talks. Obviously, we need to have a German government. We'll have the same chancellor. We'll have the same president with a difference, that they will have the same time schedule. I mean, both of them will have time in order to lead reforms.

You know there was always a political reason. In 2012, there were French elections. In 2013, German elections. Now there is no national election either in Germany and in France until 2017, and maybe that gives us time to deepen the reforms in both our countries, both our countries together and Europe. So I expect good news from these talks on the coalition and from common action.

KIMMITT: OK. Glenn?

QUESTION: Glenn Gerstell from Milbank Tweed. Thank you very much, Mr. Minister. If I may turn to defense spending for a second, the NATO secretary general has been warning for a number of years about the fact that European governments have slashed their defense spending by over 45 percent or so in the last several years. And, obviously, the United States is in no position to pick up the slack, as it -- excuse me -- has its own problems.

Could I ask your view on whether this is the new reality and we need to sort of reset our expectations on both sides of the Atlantic? Or is it truly realistic to think that the growth that you referred to in your comments will allow increased defense spending over, say, the next five years or so? Thank you.

MOSCOVICI: We have a very precise answer as far as France is concerned. Of course, France in the European Council plays a specific role. We are a permanent member of the Security Council. We are a nuclear power. We have a strong army, so we are, I would say, a power with the capacity of global influence. And we show that, including by military action, and the success of the action launched in Mali this year proves that.

And as you know, of course, when there were the difficulties that everybody is aware of in Syria, France and the United States were in very close contact and ready eventually for action. So we have a strong defense, but we have also budgetary difficulties.

We have specific ways of addressing that in France, which is that we define the public expenses for defense for years and years. It's called what we call a program (inaudible) we program our expenses. And it happens that we just did that now, and what President Hollande decided is that we will keep the same amount of public expenditures for defense in the years to come, in order to have a strong army, but we certainly won't expand expenditures. But we want to keep our capacity to be a global player in security.

KIMMITT: So we'll take one last question in this on-the-record discussion. Back in the right corner, please?

QUESTION: Hi, thanks for taking my question. This is similar to the question about spending. My name is Anna Yukhananov with Reuters. France right now has 57 percent of their economy dependent on public spending, which is one of the highest levels in Europe. And in the past, even when governments have wanted to cut that, it's been quite difficult with all the politics. So I was wondering if you could just elaborate, why are you confident that you can have so many cuts in the next two years and where exactly that will go, in addition to military? Thank you.

MOSCOVICI: I'm not confident. I'm acting for that. I'll just give you some figures. As I said, we need to make a budgetary effort of 18 billion euros in order to keep the reason (ph), the base of reduction deficit for this year. And on those 18 million, 15 million come from tax -- from cuts on expenditures, 2 million from tax -- to fight antifraud, as far as taxation is concerned, and 1 million from added taxes.

(UNKNOWN): (OFF-MIKE)

MOSCOVICI: Billions. This gives you the proportions of what we are doing right now. And we will keep these proportions and even improve them. As I said, the effort for 2015 will rely 100 percent on cuts.

How do we do that? Through this process, which I mentioned, which is called government modernization, which is evaluating all our public policies and then decide intelligent cuts, accompanied by structural reforms. That's what we want to do.

And the final result should be that the part of public expenditures in the GDP will go down. Our target initially was to have them at 53 percent by 2017. Maybe -- we suffered from low growth in 2013. We will have a bit less as far as reduction is concerned. But certainly, that's what we want to do.

We want to keep our social model. We are very attached to that. We are also very attached to public services. That's our history. And France is made by this equilibrium between a strong private economy and strong public services and infrastructures of high quality. But at the same time, we need to reduce that at the correct pace.

This is not a choice. It's political will. I will just give you an example. What means being the finance minister of France, it also means being the boss, the administration of 170,000 people. Each year, each year, we do not replace the employment of 2,500 people. We reduce from that the massive employment of this ministry. To say that it's not a fiction, it is about action. On Monday -- or, I don't know, Tuesday -- after coming back from (inaudible) I had to have a meeting with the trade unions of my ministry, and they don't think that economies or cuts are a fiction. They know it's about action.

But what I tell them, of course, we reduce the parameter of the action of minister, but we modernize it, and we give the people working here new perspectives of quality and progression in their own career. That's how it has to be done.

KIMMITT: Mr. Minister, on behalf of the Council on Foreign Relations, and especially today's attendees, we want to thank you for joining us.

MOSCOVICI: Thank you very much.

KIMMITT: We appreciated your clarity and your candor, both in your remarks and in your responses. We wish you the best of luck in the near term for your important meetings today and over the weekend and, over time, for keeping France on the move. We have a stake in your success. Best of luck.

MOSCOVICI: Thank you very much.

KIMMITT: Thank you.

(APPLAUSE)

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