11 July 2000: Address by Laurent FABIUS, Minister of the Economy, Finance and Industry Paris Europlace Symposium - 11 July 2000

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Mr Chairman, ladies and gentlemen,

From inception, Paris Europlace has managed to establish itself not only as a player with the capacity needed to strengthen the Paris market and improve its image, but also as a close and valued partner. The determination of its founders, the positive mindset of its roughly 160 member institutions, and the quality of its results and proposals explain why its views and work are heeded and respected in France and other countries. This is why I am particularly pleased to be here with you today.

There are no efficient financial markets without a well-run economy. Conversely, there is no prosperous economy without sound markets. The national pillars supporting their success are savings capacity, availability of capital and drive. However, there are at least two prerequisites. First, the authorities must foster a propitious environment, without which there can be no growth or confidence. This is the long-term endeavour on which we have been embarked for the last three years, with three priorities: return to full employment, lower taxation and a lower deficit and debt. The second prerequisite is transparency, safety and protection of transactions, retail investors and the markets, training, and modernisation and adaptation of the available tools. Indeed, these needs have become laws for you.

Ladies and gentlemen, the excellent economic, industrial and financial evolution that has lifted France to the forefront of economic performance is not an accident. All over Europe, export sales are turning around, domestic demand is picking up and order books are full. For the last two years, activity has remained significantly stronger in France than elsewhere in the euro area. This can be expected to continue with about 3.5% growth this year and probably 3% or more in 2001. We are shaking off the culture of crisis that shackled us for so many dreary years. Good news continues to pour in for France, particularly in the area of investment, reflecting the "reform-driven growth" that is our guideline. Rarely has the term "growth indicators" been so apt. But lastly and most importantly, since economics, psychology and sociology are indissociable, we have created one million jobs in three years and shortly expect to descend below the floor of two million job seekers.

All this is the result of a shoulder-to-shoulder effort on the part of our French fellow citizens, national and international economic players, and probably also a little the authorities. Growth needs good support to build momentum. This said, it would be absurd to deny the difficulties ahead of us and the reforms that remain to be accomplished. A clear strategy is therefore required for my ministry - which needs to be the ministry of economic growth and technological innovation -, for our six-month Presidency of the European Union, and for the last leg of our legislative term in 2002.

• First of all, we need a European strategy, to enable our businesses to make the most of the single currency. In an era when there are as many euro- as dollar-denominated bonds and people have already begun to forget the sudden adjustments between European countries before the euro stabilised our environment, the European single market created by the euro will unquestionably become the cornerstone of competition strategies. Indeed, it has already begun to attract players from all over the world, including stock exchanges from outside Europe. We must absolutely exploit this situation. It is up to the governments of the Eurogroup to coordinate their policies and to make their initiatives more visible and unified. It is up to the Member States to harmonise operation of their financial markets, to fight against counter-productive and harmful tax competition, to track down criminal proceeds, and to promote partnerships between European businesses in order to make our continent the home of world leaders. This is what we are determined to bring about.

• Secondly, we need an industrial strategy, mainly to spread the positive impact of new information and communications technologies by attracting new venture capital investors, by providing our schools systematically with IT facilities and by encouraging universal use of new internet applications until the often artificial distinction between the old and the new economy fades.

• Lastly, we need a public finance strategy in order to reduce tax pressure and to continue consolidating our public accounts. Our deficit will continue to decrease. We have turned around the rising public debt spiral and set a strict multi-annual standard of spending control and reduction. I want to stress this point, since there can be no sustainable decrease in taxation and debt (another word for tomorrow's taxes) without this essential if sometimes misunderstood or rejected control of public expenditure. This is not just a matter of sound management. It is a sine qua non for future growth. Most of the tax and social security cuts in 2000 reflect the wish to lower the labour cost of low wages and to promote job creation in order to eliminate unemployment traps. This process will continue and will hopefully lead us from the "stagflation" (stagnation + inflation) of the crisis years to "stabgrowth" (price stability + growth) in the new millennium.

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The Paris market exemplifies France's rebirth. This is demonstrated by the recent surge in online brokerage, which enlarges the public of equity investors, particularly among young people. Start-ups are proliferating, which the Paris market needs to provide with the necessary capital. Growth prospects are buoyant at a time when the single market in financial services is fast becoming a reality and the global investment landscape is changing dramatically. Stock exchanges are not immutable institutions but providers of IT-based services faced with stiff competition. In this virtual era, traditional stock exchanges are merging, electronic markets are burgeoning and cross-border take-overs are soaring. The creation of Euronext and more recently the iX project are only one step in this direction. Euronext is ready to forge new partnerships, such as the global equity market project, an alliance of ten stock exchanges accounting for 60% of global market capitalisation.

We need to support these developments with common, concrete and forward-looking actions in order to strengthen the Paris market even more. We need to adapt financial regulations, financial instruments and financial structures. Let me give you a brief rundown of these common actions.

• First, we need to adapt financial regulations

As we know, sudden changes on the financial markets can be destabilising and the legal rules of the stock market game need to be harmonised at European level. On behalf of France, I have just proposed our partners, in conjunction with the Commission, to set up a "group of wise men" charged with outlining ways to harmonise the practices of market regulators and to survey which resources are available to improve existing practices and to disseminate best practices. The Ecofin Council will examine this proposal next Monday.

It is moreover obvious that France's own regulatory system needs to be adapted to the new environment. The law bill on new economic regulations includes several measures designed to make financial supervision bodies more modern, safer and more transparent in terms of operation and supervision of takeovers and public exchange offers. However, we will need to go even further.

As regards our prudential authorities, I believe that closer cooperation leading to an alliance between the Commission Bancaire, France's banking watchdog, and the Commission de Contrôle des Assurances, the insurance authority, is advisable. The emergence of financial conglomerates and the fading distinction between certain banking and insurance activities make a more general approach in order. While both institutions are staffed by experts whose quality is widely recognised, their focus tends to remain too narrow. We need to promote exchange of skills, synergies of resources and a broad array of expertise.
We need to engage in a dialogue with all players and analyse the available options, from cooperation to more institutional developments.

As regards market executive authorities, growing trade in securities and the internet boom make it necessary to provide the COB with more resources. This is what its college wants and should get. We will shortly issue a decree authorising the COB to impose sanctions reflecting recent case law. In addition to material and legal upgrades, the ongoing reflection of the European committee of wise men and the current wave of stock exchange alliances are likely to increase the need for a professional association and to affect the organisation and even the operation of our market executive authorities, whether the COB, which recently weathered a turbulent patch, or the Conseil des Marchés Financiers. Our aim is, first, to develop a national and cross-sector approach to financial oversight, which will remain decentralised, become more efficient and benefit from Banque de France's unimpaired prudential powers, and, secondly, to foster a cross-border approach by the market authorities by making Europe part and parcel of their reasoning.

Confidence in the financial markets not only depends on quality supervision but also on the guarantees they can offer their clients. I therefore believe that we need to add a non-life insurance fund to our existing system, which consists of funds to guarantee deposits and securities, and a life insurance fund.

• Secondly, we need to adjust our financial instruments

Our aim is to raise investor interest in risk. This will notably call for reform of wage savings in order to provide wage earners with a new source of income and promote long-term equity investment and therefore business financing. After in-depth dialogue, this is now laid down in a law bill scheduled to be examined by the Cabinet in the beginning of August and to be discussed by Parliament this coming autumn.

We will also need to manage public debt even more efficiently and therefore at lower cost for the taxpayer. In line with this intention, France Trésor will shortly be transformed into a Debt Agency accountable directly to the Treasury Director. It will be provided with the resources and market professionals necessary to engage in even more active debt management. This unit will have the flexibility and visibility necessary to accomplish its purpose. This initiative can be expected to have a positive impact on the bond and derivatives markets.

I have also asked France Trésor to prepare rapid implementation of a rate swap portfolio and to reduce debt outstanding before the end of the year. This will take the form of a series of repurchases with a value of EUR 10 billion. France Trésor is about to start consulting the primary dealers regarding the repurchase mechanisms to be used, which may not only be private transactions but also reverse auctions. Note that these repurchases are made possible by the good outturns in fiscal 1999 and 2000. They also reflect the wish to increase the amount of BTF issues in the months ahead in response to steadily growing demand for this benchmark product in the euro area.

• Lastly, we need to adapt our financial organisation

This requires an effective Ministry of Finance. In line with this purpose, I have used dialogue to reform and modernise the ministry. You are the ministry's natural contacts. You need to work with a service-driven, innovative and modern administration focused on its core business. This is why I have for example decided to scrap the special funds so far run by the Public Accounting Directorate.

We also need to modernise the sector of state-owned financial institutions. In addition to the 1999 reform of the Caisses d'Epargne savings banks, we have also taken Caisse des Dépôts et Consignations a step into the future with the creation of CDC Finances. Moreover, we will shortly divest Banque Hervet, based on an business plan designed to expand its operations and staff. On completion of this transaction, we will have a clearly outlined public financial sector.

The State rightly remains an important part of our financial system. In line with the reforms conducted since 1997, the ongoing reforms and the measures still to be adopted in the future are not dictated by short-term considerations but by the wish to strengthen our financial system in the service of growth and employment.

All these measures are already in the pipeline. They are inspired by the wish to encourage development of financial activities in France and Europe, a sine qua non for strong and sustainable growth and financing for our businesses - particularly SMEs - in an international environment of cooperation and competition. The markets are torn between relocation, which is technologically possible, and consolidation, which is wanted by financial service providers. France is a preferred investor destination. While I am delighted with this, I am well aware that we need to remain on our toes, to be able to change what needs to be changed and step up improvement. We can only achieve this if our initiatives are supported by all players, primarily banks and investment companies. This is the key to the strategic plan currently being prepared by Paris Europlace. Together, we need to make the euro area the foremost destination for financial investment, notably to strengthen the French economy and with it the Paris market.

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Mr President, ladies and gentlemen, apart from these aspects, touched upon briefly in this address, we all know that a financial market is above all a community of activities and professions, an alliance of men and women in the service of not just a market or a significant slice of value added, but also in the service of economic growth and national prosperity, helped by a climate of which the tax rules for those who work on France's financial markets are part. France's climate needs to favour business and its financing outright.

I am sometimes asked whether I am a social or liberal minister. I do not particularly like labels or personal tags. As part of my team, I am a manager who wants to solve today's problems and anticipate tomorrow's. I am certainly not interventionist. I am definitely attached to economic freedom and social progress. And I am concerned with coherence. In the name of coherence, we cannot celebrate the creators, the entrepreneurs and the businesses while maintaining the barriers by which they are hampered. We cannot advocate an entrepreneurial culture while refusing to do anything to promote financing. You support growth, which is a sine qua non of solidarity. You finance investment and consumption. You permit innovation and so contribute in a myriad of ways to employment. You must therefore be heeded and encouraged. Thank you.