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CNBC Interview: Julia Chatterly Interviews Emmanuel Macron, French Economy Minister

Following are excerpts from the unofficial transcript of a CNBC interview with Emmanuel Macron, French Economy Minister, aired on Monday 7th September.

CNBC: I think where you're concerned actually France has a lot in common with Italy at the moment. You're a reformist in a country where you've got a number of politicians who are reluctant to see change. There's a problem with corporatism, with clientelism as well. How do you break those binds in France?

I mean look first France has a lot of assets basically to be reformed. That's a strong economy, a resilient economy, with good infrastructure, with good students, and so on. So that's the first point. The second one is, I mean, when you have the willingness of the president of the Republic and the prime minister, you can pass reforms. And in the current situation, the president constantly reaffirms his willingness precisely to pass these reforms because he is completely aware of the fact that the recovery of our economy requires a series of reforms on products and goods markets, on labour markets, on strong coordination with the rest of Europe.

CNBC: I'm going to pick up on the labour market. You in recent days have hinted again at the prospect of trying to shake up the 35 hour work week. The prime minister has come in and said look this is not something that's going to change. How are you going to fight that? Because this is not something that arguably is good for the French economy.

Yeah. My point was to say we have an issue about the number of hours, I mean the working time. Not just the 35 hours and this law. So the perspective today is not to kill the legislation about the 35 hours.

CNBC: But it needs to be killed.

No, the issue is to provide much more flexibility at the corporate level. So the reform we want to implement and we will implement is to increase flexibility precisely at the branch and corporate level in order to allow cooperate through majority agreement to work more, to go out beyond the 35 hours per week. But when you look at the figures, in reality, people in France work much more than 35 hours.

The average real time is 38 hours today. So what we need is more flexibility on the ground, more flexibility at the corporate level, more flexibility at the branch level, at the sector level in order precisely to be much more adapted to the inflows and outflows of the current economy.

CNBC: And the French people, the unions are going to be willing to accept those longer working hours if you don't break that statement about the 35 hour work week?

Yeah I think we managed to pass a series of reforms. I just passed a reform about Sunday closure, another reform in order to unlock a lot of sectors, a series of reforms to increase flexibility at the corporate level as a first stage, we passed this law this summer. You don't, I mean, you don't see a lot of people demonstrating on the streets in Paris. I mean people are completely aware. And you mentioned precisely working hours. A poll yesterday which highlighted the fact that a majority, a large majority of people, are completely aware of the fact that we need to increase working hours and are supportive with such a reform.

CNBC: And obviously it's tied to the labour market and to jobs. This is something obviously that you mentioned, the president, he's tied hopes or a future going for the presidency again to a decline in jobs. Will that now happen?

I do believe. First because we are increasing our growth through this series of reforms, because of the good momentum of the European economy.

CNBC: It's still very slow though.

No I agree with you. I agree it's too slow. It's extremely modest at this stage, so but that's a slow recovery. But the day we go beyond 1.3 per cent you start creating jobs again. So that's the first point. The second one is that if we increase this flexibility of our labour market, we increase the ability to create jobs even with lower growth rate. And I think that's very important.

That's what we need. We are a resilient economy but with too much rigidity on the labour market. That's the spirit of this reform. So we passed first reform in order to deliver and to get results. From this reform we need a few months for sure. Second we will… in order to increase the labour market, especially at the corporate level. And third we are increasing as well and stimulating private investment because that's one of the key pillars of this macroeconomic policy. Without investment you cannot have jobs.

CNBC: And you consistently underperform Germany and have done. What are the international community companies saying to you because there has been this perception about France that their money isn't welcome and you're not a good investment.

I think that's changed. It has changed. It's no more the case. You're perfectly right, if you look at the last decade we lost a lot of market shares in comparison with Germany. Why? Because we didn't deliver in terms of competitiveness. We had a constant increase of wages without increase of productivity and we increased divergences between our two economies. So now we are in the recovery phase.

I just want to quote a figure, when you look at unit labour costs, we decreased during the last semesters and now in the industrial sectors our unit labour cost is under the German one so we are precisely re converging with the German economy. We are attracting a lot of investors. I look just at the past semester: Facebook, Intel, Samsung they decided, announced a series of investments. And private money for investment in France is largely welcome.

We reform our tax regime for capital gains, now it's completely aligned with the US system. We stopped the 75 per cent tax. It's finished, over by the end of 2014. And we've just passed a reform, it was in the law I defended in parliament, in order to align precisely all the preference share system, all the stock option systems, with the rest of Europe and especially with the UK. So now we are attractive. We are reforming. We are back.

CNBC: You're obviously creating tensions within the socialist party because there are elements that look at what you're doing and are very concerned by the direction you're taking, not only the party, but of course the country – a more liberal sense with the reformist agenda you seem to be promoting at this stage. Is there an acceptance by President Hollande that this is actually how you are going to ultimately to be able to carry on these reforms and win the next election as a party? I mean I saw a poll recently saying Dominic Strauss Kahn was actually more popular than President Hollande so it can't get much worse in a sense.

I mean, first President Hollande is the one who decided this supply side policy the beginning of 2014. He announced what we call the responsibility pact i.e. we decided to cut by 2 per cent GDP corporate charges and corporate taxes which was a big announcement and he is absolutely resilient and constant in this policy. Second he is the one who appointed me. I mean I'm nothing the day the president decides not to follow these policies. I'm not just specific people or a particular case without any support. If the president doesn't share this view, and endorse this view, I mean, I'll leave. I'll become an intellectual business guy.

CNBC: Why did you wait so long?

So I mean it's very often the case, he was elected mid-2012. He started to deliver a competitiveness policy because he took first measures end of 2012. He started precisely fiscal consolidation by day one. But we were largely, largely involved in the European crisis. It took a lot of our time and our energy first to fix the Greek situation and to launch the banking union and deliver. So I think now what's important to understand is that the last two years and it will be constant until the end of this mandate, we are on a very aggressive recovery policy, competitiveness policy and pro-business policy and I do believe you're right, it creates a lot of trouble, especially in the socialist party because we are changing the ideology. We are changing and modernising this party and it's going through this reforms and through the fact that if you're not pro-business, if you don't like, if you're not pro-market, how do you want to share something? You don't produce anything. I mean, that's just common sense.

CNBC: One of the criticisms of the French economy throughout the financial crisis was that you were so reliant on domestic demand rather than managing to translate or rebalance your economy towards a greater share of exports. Do you think that's going to give you an element of resilience now when we look at the likes of Brazil, of Turkey, of China and some of the weakness that seems to be filtering in? The focus more on the domestic demand story actually benefits you at this point.

I mean, you're right. Historically speaking, the French economy was largely driven by the demand side. It's completely true. And that's part of our resilience, and the fact, when we recover, we always recover much more slowly than the others. But when you look at our reforms, we are switching from this demand driven economy to a supply side driven economy which is painful on the short term. But today when you look at Europe we need a demand stimulus. But my point is to say this demand stimulus could not come from the French economy due to the fact we have to implement fiscal consolidation. We have today 57 per cent GDP in public expenditures, we have to decrease this share to 50 per cent by 2022.

That's the guidance. So which means that on the short run if you want to deliver the demand stimulus, you need the other countries and you need Europe. That's precisely the new deal I proposed one year ago and we want to implement. France has to reform, to recover and get more competitiveness. Germany has to invest, they are in a situation to do so because they're over consolidating. Which is a mistake as well, and Europe should launch a big stimulus process because when you look at an aggregated level we are not over indebted. If you compare the Euro Zone or the EU with the US or with Japan or what else we're not over indebted. So we are… All the tools and capacity precisely to raise money on the market and invest in new projects. That's for me the basis of this idea I will launch with Sigmar Gabriel of a Euro Zone budget we want to deliver.

CNBC: I wanted to ask you very quickly about migration. You've talked about some level of unity there in Europe. How best do you think we need to tackle the current crisis with refugees and migration and does it begin actually with explaining better to our populations the difference between refugees and economic migrants and actually some of the economic benefits that can come.

Yes you're right. I think first pedagogy is key. Second we need as well a better political and diplomatic organisation. That's what the President Hollande and Chancellor Merkel launched yesterday as a big initiative. The EU made a great job as well, Prime Minister Renzi launched a series of initiatives a few months ago so I think we need the proper answer from a political point of view in order to address precisely this refugee issue, which means the good organisation to hold them. Third, we have to integrate them progressively. That's the economic challenge, because for sure they will be here for a long time and you're right to point the fact that there is a difference with economic migration because with these people they didn't choose to leave their country. They were just killed in their country. But when you look at the situation for Syrians, Eritreans and so on... you have a lot of very well trained people, very qualified people so that's also an opportunity. That's exactly what Chancellor Merkel understood by accepting all these refugees.

800,000 refugees probably this year for Germany but you have a lot of doctors, you have a lot of joiners. That's an opportunity if you're in a situation to integrate them. That's the second challenge at a European level. The third one for me is if you want to cope with this kind of situation because that's not an exception, you will have precisely to develop your diplomatic, your development answer. That's key. We need a coordinated action in Middle East, in Africa precisely to avoid this kind of situation or to pre-empt them.