Lagarde says Europe will deliver in the end
By Alan Beattie
Christine Lagarde took over at the International Monetary Fund on July 5 with a debt crisis each side of the Atlantic to worry about.
Her biggest immediate global problem was the US debt ceiling imbroglio. But there is little that the IMF, whose resources are tiny next to the gigantic size of the US capital markets, has been able to do about that.
A former member of the French national synchronised swimming squad, Ms Lagarde’s self-discipline and control are evident in the determination with which she stonewalls questions about an IMF contingency plan in case of US default. “If I had, do you think I would tell you?” The question is asked again. “What’s your next question?” It is asked once more. “And the one after that?”
A more pertinent query involves the Greek crisis, whose immediacy has overshadowed her longer term goals of promoting diversity – intellectual and geographical as well as in relation to gender and ethnicity – within the organisation.
The European stranglehold on the managing directorship of the IMF seemed for decades like a peculiar but fairly harmless tradition. Now, sceptics suggest the fund may be biased towards the Europeans and, in particular, towards protecting French and German banks holding Greek debt from having to accept big losses in a restructuring.
Complicating the situation is the fact that, right up until taking over the IMF, Ms Lagarde was herself French finance minister. Criticism of how the eurozone has handled the crisis – common inside the US administration and among emerging market countries – is, implicitly at least, a partial criticism of her.
Mostly, apart from her regrets about the eurozone authorities’ ability to convey a unified message, she rejects criticism of their handling of Greece. Ms Lagarde says the failure of the first rescue, a €110bn financing package with €30bn of IMF money launched in May last year, was due to “reform fatigue” in Greece and repeated revisions to Athens’ deficit statistics, not the design of the programme.
Ms Lagarde sidesteps disparagement of the failure of the first plan to insist on a debt restructuring for private investors. “PSI [private sector involvement] was not on the cards at the time,” she says. “I am not going to rewrite history.”
The IMF, she says, will be involved in the second Greece bail-out, though Lagarde declines to say how much it will give and accepts that it may exit after a few years and let the eurozone take over entirely. And most importantly, she insists, the decision to support a new programme and how much money to put into it will be determined by the rules of the fund, not her whims as a European MD. “I shouldn’t be tougher than what the rules and the policies provide,” she says. “I shouldn’t be biased either way.”
Yet despite intense frustration in the US, and elsewhere, at the laboriousness of its decision-making, Ms Lagarde has no fundamental doubts that the eurozone is the right group to be leading the rescues in Greece, Ireland and Portugal. “It is quite typical of Europe to deliver at the end of the day because the European members do deliver but it takes a necessary democratic time, which is not always pleasing to the markets,” she says.
“When you put 17 democracies together under one currency ... it is very much a race between the democratic game and market expectations. Democracy prevails at the end of the day.”
By Alan Beattie
Christine Lagarde took over at the International Monetary Fund on July 5 with a debt crisis each side of the Atlantic to worry about.
Her biggest immediate global problem was the US debt ceiling imbroglio. But there is little that the IMF, whose resources are tiny next to the gigantic size of the US capital markets, has been able to do about that.
A former member of the French national synchronised swimming squad, Ms Lagarde’s self-discipline and control are evident in the determination with which she stonewalls questions about an IMF contingency plan in case of US default. “If I had, do you think I would tell you?” The question is asked again. “What’s your next question?” It is asked once more. “And the one after that?”
A more pertinent query involves the Greek crisis, whose immediacy has overshadowed her longer term goals of promoting diversity – intellectual and geographical as well as in relation to gender and ethnicity – within the organisation.
The European stranglehold on the managing directorship of the IMF seemed for decades like a peculiar but fairly harmless tradition. Now, sceptics suggest the fund may be biased towards the Europeans and, in particular, towards protecting French and German banks holding Greek debt from having to accept big losses in a restructuring.
Complicating the situation is the fact that, right up until taking over the IMF, Ms Lagarde was herself French finance minister. Criticism of how the eurozone has handled the crisis – common inside the US administration and among emerging market countries – is, implicitly at least, a partial criticism of her.
Mostly, apart from her regrets about the eurozone authorities’ ability to convey a unified message, she rejects criticism of their handling of Greece. Ms Lagarde says the failure of the first rescue, a €110bn financing package with €30bn of IMF money launched in May last year, was due to “reform fatigue” in Greece and repeated revisions to Athens’ deficit statistics, not the design of the programme.
Ms Lagarde sidesteps disparagement of the failure of the first plan to insist on a debt restructuring for private investors. “PSI [private sector involvement] was not on the cards at the time,” she says. “I am not going to rewrite history.”
The IMF, she says, will be involved in the second Greece bail-out, though Lagarde declines to say how much it will give and accepts that it may exit after a few years and let the eurozone take over entirely. And most importantly, she insists, the decision to support a new programme and how much money to put into it will be determined by the rules of the fund, not her whims as a European MD. “I shouldn’t be tougher than what the rules and the policies provide,” she says. “I shouldn’t be biased either way.”
Yet despite intense frustration in the US, and elsewhere, at the laboriousness of its decision-making, Ms Lagarde has no fundamental doubts that the eurozone is the right group to be leading the rescues in Greece, Ireland and Portugal. “It is quite typical of Europe to deliver at the end of the day because the European members do deliver but it takes a necessary democratic time, which is not always pleasing to the markets,” she says.
“When you put 17 democracies together under one currency ... it is very much a race between the democratic game and market expectations. Democracy prevails at the end of the day.”