The budget deficit is ballooning to €42 billion ($59,7 billion). The trade deficit is smashing records. Business confidence has fallen to its lowest in five years. The euro is now hugely overvalued for France, though not for Germany. It is hammering French luxury exports and forcing Airbus to mull yet another €1 billion of cuts. Her own prime minister blurted out last Friday that France was now “bankrupt”, with no chance of halting its relentless slide down the global growth league unless there is a drastic change of course. “I am at the head of a state that for 15 years has been in chronic deficit. I am at the head of a state that has not once passed a balanced budget in 25 years. This can’t go on,” he said. If that was not enough, Jean-Claude Trichet, the president of the European Central Bank, more or less said over the weekend that the country had become a basket case. “French public finances are in very great difficulty: it’s a fact,” he said, warning that France had been left behind with the biggest and least reformed state sector in Europe, still consuming 53% of GDP. “We’re nine points above Germany and 15 above Spain. Even the Swedes, Finns, and Danes have cut below us,” he said. Lagarde can only laugh. “I’m not doing this job for pleasure; or for a good balance of life and work: That’s gone out the window,” she said over breakfast at Bercy, the vast 1970s bureaucratic Bastille on the Seine. Nobody quite like this deracinated free marketer has ever held court before at Bercy. But then she was brought in as a Gallic Thatcherite by President Nicolas Sarkozy to foment revolution, or “La Rupture” as he calls it.

Lagarde must know that there is now little hope of delivering the Sarkozy promise of 3% growth next year, which is why she – with prodding – is now waging a near daily battle with the ECB over the euro’s exchange rate. “The ECB is an independent body and it would not come into anybody’s mind in France to question that independence,” she said. “Should there be more management of the value of the euro? It is something we are arguing about. It is certainly worth having the argument.” Lagarde said it was too early for talk of invoking Maastricht Treaty powers to force a devaluation of the euro, the so-called “nuclear option” of Article 104-9. “Not yet,” she said. It is arguable that French pressure has already forced the ECB to yield on monetary policy, but the big test will come in October. “It’s up to them to decide, I would hope they do so on the basis of macro-economic circumstances. The way the yuan, the yen, and the dollar are going would lead me to believe that at least stability, if not rate reduction, would be appropriate.”

Laurence Parisot, head of the employers group MEDEF and another free-market feminist rising to the top of the new France, said she was deeply shocked by Sarkozy’s assault on EU competition law, but she forgave him. He has managed to shake up the whole way people think about business, she said. “Under Chirac, companies were seen as evil. Sarkozy has changed how people talk. He is the most pro-business president since the second world war.” As long as Lagarde and Parisot are still willing to vouch for Sarkonomics, one can perhaps allow it the benefit of the doubt. (Daily Telegraph)