Sarkozy’s Better Half
If the French president has a hope of getting things done at the G-20, it's because of his philosophic finance minister, Christine Lagarde.
Of all the leaders arriving at the G-20 summit in Pittsburgh today — the third such meeting of finance and other government ministers to discuss the crisis and recovery since the crash of Lehman Brothers a year ago — French President Nicolas Sarkozy has been among the most headline-stealing. He has called for strict compensation limits for the banking executives who precipitated the crisis and has said he will ask for sanctions on countries that do not comply. The famously energetic French leader has even threatened to walk out of the summit if his demands aren’t met.
Early word out of Pittsburgh indicates that his brash style isn’t necessarily going to get him what he wants — but luckily, he’s got a secret weapon. One of his cabinet officials has been making the press rounds with him, playing good cop to his bad cop in copious interviews in print and on television. That is Christine Lagarde, France’s enigmatic finance minister and the former chair of the international law firm Baker & McKenzie. She has emerged in the past year as a major political player regarding the recession, and as a foil for Sarkozy. When he shouts, she coos. When he rages, she deploys wit. And when he bellows, she demurs.
That coolly philosophic attitude — underpinned by a deep knowledge of labor law, corporations, and international management — has made Lagarde one of Europe’s most valuable economic negotiators. If Sarkozy doesn’t get what he wants in the final communiqué, Lagarde, his more sensible half, just might.
Christine Lagarde was born to academic parents in Paris on New Year’s Day in 1956. Her father, who died when she was a teenager, was a professor of English, literature, and ancient Greek, and her mother was a grammar-school teacher. To this day, Lagarde frequently quotes philosophy, and she nearly entered legal academia herself. She excelled in her youth at school and athletics, growing to 6 feet tall and winning a bronze medal in the French national synchronized swimming competition at age 15.
After finishing high school, she spent a formative year on an American Field Service exchange program at the swank Holton-Arms girls’ school in Bethesda, Md., just outside Washington. It was 1974, at the height of the Watergate crisis. Lagarde interned on Capitol Hill as an office assistant for William Cohen, a Republican congressman from Maine who later served as defense secretary in Bill Clinton’s cabinet. She grew close with her American host family, and enamored of the country, which she says is more "positive" than France. She also garnered a skill which would prove useful later in life: perfect command of English.
But she returned home to study political science at Institut d’Etudes Politiques, d’Aix. Initially, she considered becoming part of the civil service, but was rejected (one of the few failures Lagarde admits) from the highly selective program and decided to become a lawyer instead, focusing on employment law.
Despite her high marks at graduation, she was roundly rejected at French law firms, so sexist was the legal culture in Paris. Then, she interviewed at Baker & McKenzie, a large Chicago-based firm with a clientele of major international corporations like Coca-Cola. The Paris office had a female partner, Monique Nion, who became Lagarde’s mentor. "There was a feeling of ‘I went through hell, my dear, and by God, so will you,’" she told Investor’s Business Daily. (Her office did not respond to a request for an interview.)
From the Paris office, Lagarde quickly ascended through the firm’s ranks by managing major antitrust and labor cases, including ones with mass redundancies. She made partner in 1987 and then became the head of the firm in Western Europe, shuttling between Brussels, Milan, Madrid, London, and other cities. The firm still had an old-boy culture, which Lagarde undercut by outworking her colleagues and maintaining a cutting wit, one colleague recalls. "She was a very smart, very talented even-hand."
In 1999, she became the company’s first ever female chairman (she dislikes the terms "chairwoman" and "chairperson"), moving to Chicago with the mission of streamlining and centralizing the diffuse practice. Derided as "McFirm" by its competitors, Baker & McKenzie had become massive and inefficient, earning far less per partner than firms like Skadden, Arps, Slate, Meagher & Flom. In her five years at the helm, she increased revenue by half, to more than $1 billion annually, and integrated the company’s 68 offices. She also radically transformed partner compensation, despite serious opposition (pay cuts were "like taking your lunch," the colleague says), making the system more results-based and fairer.
Early one morning in 2004, Lagarde received a call from Paris. Then-Prime Minister Dominique de Villepin was on the phone, asking her to come back to France and join the government. She left her $1 million job to become a junior trade minister in President Jacques Chirac’s cabinet and has spent the past five years ascending the ranks into France’s political elite. In the trade bureau and as agriculture minister, a post she held briefly in 2007, she earned a reputation as a good soldier for Chirac, who advocated for economic dirigisme, or state controls. She won particular plaudits for her advocacy of certain trade protections for farmers — antithetical to her current positions though that may have been.
When Sarkozy became president in May 2007, Lagarde became finance minister, a position Sarkozy himself had once held. Despite their wildly different rhetorical styles, they shared an economic vision for France: free markets, less regulation, and globalization. The country had languished in lean times even before the financial crisis hit. It had high unemployment and ran a deficit, largely due to its strict labor laws. Lagarde and Sarkozy developed a $15 billion series of tax cuts and employment-law alterations. They ended the 35-hour work week, making overtime tax-free. They capped the maximum income tax at 50, rather than 60, percent. They eased restrictions on entrepreneurs. Lagarde also slashed the ranks of her own massive department in the process of cutting 50,000 jobs from the famously bloated French civil service. To make up for easing taxes on the wealthy, she increased the non-progressive value-added tax. The motto for Sarkozy’s economic plan was, "Work more, earn more."
To sell the unpopular changes, Lagarde turned to philosophy. In an address to the National Assembly, she said, "There is hardly an ideology that we haven’t turned into a theory. We have in our libraries enough to talk about for centuries to come. This is why I would like to tell you: Enough thinking, already. Roll up your sleeves." She also took aim at France’s intellectuals and socialists, like Bernard-Henri Lévy and Ségolène Royal. "They want to bring people down to solidarity," she has said. "They regard work as alienation in the old Marxist understanding."
Such pronouncements, coming as part of what critics see as her affection for the "Anglo-Saxon" model of capitalism, have earned her an unflattering nickname: "The American." Her asceticism — apparently something the French associate with those across the pond — probably also contributed. Lagarde is a non-drinking, non-smoking, yoga-performing, lap-swimming, health-obsessed vegetarian. (She has given up synchronized swimming, saying, "Legs up in the pool is not the expected behavior of the minister of economy.") Most famously, she has said that she keeps her "work-life balance" — a term she readily mocks — of caring for her two sons (who have always lived in Paris and are now in their early 20s) and juggling a punishing schedule by sleeping just five hours a night.
Since the crisis, however, Lagarde has done almost everything in opposition to the Americans. She has become a strong voice for international financial reforms: beefing up the powers of the G-20 Financial Stability Board, levying penalties on tax havens, regulating investment vehicles like hedge funds, raising capital requirements, and, most contentiously, imposing restrictions on bankers’ pay (a measure U.S. President Barack Obama and British Prime Minister Gordon Brown oppose) — something she has plenty of experience with from her time at Baker & McKenzie.
She has done all of this in her characteristically calm-spoken, sensible way, though she has toughened up her rhetoric in the face of U.S. and banker intransigence. She said it would be "absolutely outrageous and extraordinary if leaders of other countries did not understand the necessity to change the system and not go back to business as usual." But because of her relative pro-capitalism (compared with, say, the Italians) and her relative calm (compared with Sarkozy), she has become a key figure in the frantic backroom negotiations occurring before the announcement of the G-20 agreements.
But has anything come from them? In the negotiations, which have been ongoing for a year, Lagarde has suggested alternatives to Sarkozy’s pay caps, such as targeted taxes and regulating what percentage of profits can be paid in bonuses. Reportedly, the French have not won fixed caps on executive pay in the final communiqué, but the document makes concessions to the country’s requests for more international cooperation and capital requirements. (The European Commission may impose executive pay standards instead.) This small victory is all due to Lagarde, the sensible voice who allows Sarkozy to be outrageous. Indeed, it’s "The American’s" insistence that ensured France had a real voice at the table.