Why Christine Lagarde should never be head of the IMF … Christine Lagarde is in poll position. Having put her name forward last week, the silver-haired French finance minister may well become the new managing director of the International Monetary Fund (IMF). Lagarde has, with a depressing inevitability, secured the backing of most European countries. The UK was among the first to endorse her. There are rumours the mighty US could soon throw its weight behind Lagarde – making her bid a fait accompli. Europe seems determined to retain its prerogative of appointing the boss of the world’s most important financial watchdog. Throughout the IMF’s 65-year history, all 11 bosses have been from Western Europe. In return for allowing this stitch-up, America has traditionally provided the IMF deputy, while securing the top spot at the World Bank. – UK Telegraph
Dominant Social Theme: At this most critical time, this Western powers are about to make a critical mistake regarding this critical facility!
Free-Market Analysis: There seems to be emerging consensus in the constitutionally suspicious alternative Internet press that Dominique Strauss-Kahn was “stung” for any one of a variety of reasons. It was not rape, therefore, that brought him down but his effectiveness in dealing with the EU’s economic crisis.
Alternatively, we have read, his arrest provided a distraction from the real and serious failures surrounding the great powers ability to deal with the unfolding crisis.
Finally, there is the idea that DSK wanted to continue to rejigger the voting mechanisms of the IMF. The US currently holds 17 percent of the votes in the IMF and IMF bylaws demand a majority of 85 percent for any substantial moves or changes in policy. Thus, the IMF is the US’s creation and is beholden to it.
Anyway, we’ve stayed away from speculating. We don’t seen any specific promotional value in what happened to DSK, other than to reinforce the meme that American justice is absolutely pure and non-discriminatory. But that’s a pretty small, sub dominant meme, not one that would seem especially worth reinforcing at this point in time.
While we are not tempted to join the fray regarding DSK conspiracy theories, we have presented on several occasions the one powerful dominant social theme that has predictably emerged from the affair, which is that the IMF is an incredibly important institution and that its leaders are really, really, really important people.
In fact, if there were no IMF and no leadership it is likely – so we are informed – that the world’s economies would probably collapse sooner rather than later. You can see our previous articles on the topic here:
We recently analyzed the memes in an article by Joseph Stiglitz on this topic, entitled, “The IMF cannot afford to make a mistake with Strauss-Kahn’s successor.” Now the UK Telegraph has issued yet another jeremiad on the importance of the IMF from columnist Liam Halligan. This focuses on the meme of IMF-as-most-important-institution-ever.
The institution he writes, “needs to reflect the extent to which the world has changed since it was launched from the ashes of the Second World War.” Why? Because the markets could soon face another “Lehman moment.” Lehman Brothers is widely held to have destabilized global markets in 2008.
From this (fallacious in our view) perspective, Halligan goes on to argue that it would be a “historic” mistake to appoint a European to head the IMF, especially given that non-Western countries compose most of the world’s population now, some 80 percent. He cites other statistics too: The world’s markets produce half the GDP and out-trade the West. They hold most of the world’s currency reserves and are not mired in debt.
The IMF, he concludes, needs a leader from the developing world, a world that has arranged its finances better than the Western world. The West does not have a moral argument to make regarding IMF leadership. The mess it has made collectively of its finances has removed its credibility and “moral authority.”
Halligan is also upset over the idea that the new leader of the IMF might be what he calls a “politician.” Halligan claims the IMF “works properly” when it is taking an adversarial role and “banging political heads.” The IMF must be seen as “tough – even unreasonably tough … an IMF that colludes with the political classes isn’t enacting reform. It is simply helping the politicians bury their mistakes and kick any problems into the long grass where they will fester.” Here’s some more from the article:
The IMF should be respected – even feared. It is for the politicians to stand up and face the political music – explaining to their electorates why harsh actions are needed and why nations can’t go on living beyond their means. Perhaps the most dangerous type of politician to run the Fund is a politician still hankering after high office. Strauss-Kahn, of course, was using the post and the influence it bestowed over trillions of dollars of bail-out cash, as a platform for a French presidential bid. As such, he turned the IMF into a soft-credit society for the eurozone’s periphery nations, holding the single-currency together for the benefit of his Franco-German friends.
Strauss-Kahn’s continued insistence on “just one more bail-out”, rather than forcing Greece, Portugal and the rest to face up to genuine debt-restructuring, also made sure that the losses stayed with plebian taxpayers, rather than being shifted on to Europe’s banks. He could have called in the favour, no doubt, when the need came to finance his campaign for the ultimate prize. It was not to be for Strauss-Kahn, of course. But what is to stop Lagarde following the same route? …
Running the IMF, now more than ever, requires economic expertise, massive intellectual authority and a willingness to be deeply unpopular – particularly, if you are a European, on your home turf. The emerging economies need to stop moaning, put their differences aside, and set their combined authority behind a world-class economic policy-maker to run the IMF. Such nations should be doing everything in their power to wrestle control of this pivotal institution from a Western political elite that is not only intellectually inadequate, but which seems determined to compound the world’s economic problems …
Halligan is convinced that Lagarde has her own unfortunate political ambitions. As we can see from the above excerpt, he seeks a person of “massive intellectual authority” – and believes that person can only be found in the developing world.
We wonder exactly why somebody of massive intellectual authority would want to run the IMF in the first place. Anyone with massive intellectual authority would realize that the IMF is a dysfunctional organization that was constructed to increase Western dominance over the developing world, not to “help” countries recover from excessive debt.
The IMF is part of a fiscal and monetary tag team with the World Bank. The World Bank encourages dysfunctional, developing-world leaders to borrow more than their countries can withstand. Once the money has been wasted or spirited away, the country is effectively broke and the big western banks call for the IMF to step in.
The IMF’s solutions are always the same. They tend to crush the middle class by reducing public subsidies and hiking taxes. Then they put tremendous pressure on remaining government officials to sell off a country’s prime assets under the pretext that these are assets that need to be privatized. In truth these are mostly monopoly assets, like water and electrical facilities – and thus even privatization does not remove the monopoly status. One has just transferred a public monopoly into private hands. The profits are tremendous.
It is hard to avoid the conclusion (we won’t) that the EU acted as the World Bank when it came to Europe’s PIGS. These southern countries were given tremendous amounts of cash to supposedly make them financially healthy – or healthy enough to join the EU. But in addition to outright grants were numerous huge loans that were presented to all these countries during the faux-boom of the 2002-2007, many no doubt with EU cooperation. Now that the bill has come due, the EU is cynically calling on the IMF to ensure these countries make their payments.
Why isn’t it working this time? Why have the protests only become stronger and deeper, threatening to tear apart the entire EU? We’ve presented the idea that the Internet itself has helped mobilize people in a way that Western elites were not expecting. Instead of crushing European middle classes and strengthening the EU, Eurocrats are discovering they may fundamentally weakened it and the euro besides.
The IMF, of course was supposed to play an integral role in this slaughter of the PIGS. The IMF is always involved in such pillaging. Of course, Anglosphere elites would much rather have the developing countries clamoring to “get in” than ignoring such institutions or seeking to remove themselves. This may yet happen however if the US continues to insist on its 17 percent control of the IMF.
Conclusion: Times are changing substantially, as are the attitudes of developing countries. The control that Western elites expected to exercise over these institutions is coming increasingly into question. Ironically, if the West does give up control and allow these institutions to play their putative role, they will become fairly useless to their creators. They will also be seen, increasingly, as they ineffective entities they actually are. For this reason, the US is not likely to cede any part of its 17 percent. Lagarde may get her dream post, but she may soon come to regret it.
According to Shane Ross all year the lady has been tormenting us. And all week we have been love bombing her.
Christine Lagarde, French Finance Minister and no friend of Ireland, has become the darling of our Cabinet.
The love-in began in Brussels on Monday when minister of state Lucinda Creighton launched the whirlwind courtship. “I would anticipate,” enthused the lively Lucinda, “that we would be very well disposed to her candidature.” Christine had been testing the waters for her campaign to succeed Dominique Strauss-Kahn as IMF boss.
Eyebrows were raised at Lucinda’s enthusiasm; but it was probably just Lucinda showing a little sisterly solidarity. Lining up behind Christine after all the grief she has given Ireland in recent months was hardly government policy.
Not until Tuesday, anyway. When Tanaiste and Foreign Affairs Minister Eamon Gilmore headed for the Elysee Palace. Eamon was greeted by no less a person than French foreign minister, Alain Juppe.
Eamon emerged from the meeting cooing like a love bird. Suddenly (according to the Tanaiste) France was “showing greater understanding of Ireland’s position on corporation tax and the interest on our EU/IMF bailout”. He even promised to support the lovely Christine if she just happened to put her name forward for the vacancy at the IMF. Lo and behold, within 24 hours her hat was in the ring.
A pity Eamon did not tell the Taoiseach that he had committed the Cabinet to Christine. A few hours later Enda Kenny told the Dail that the matter had not yet been decided at the top level.
But an agenda was emerging: Ireland was shaping up to back Christine, the nation’s tax tormentor.
On Wednesday, the courtship was consummated. Our own Finance Minister, Michael Noonan, was granted an audience in Paris with the French phenomenon. He was given a full 30 minutes. The meeting was flagged as yet another turning point in our bid for a lower interest rate on the bailout terms. It was widely assumed that the pair were cooking up a deal, that we were cannily trading support for Christine’s IMF ambitions in exchange for a less penal interest rate on our loans.
The cameras were called in to record the meeting. Michael was filmed by RTE greeting the elegant Christine with what Irish Times journalist Mary Minihan described as “an awkward continental kiss”.
Body language suggested Michael was not enjoying one of the few remaining perks of the Irish Finance Minister: you get to kiss the cheek of your French tax tormentor, deferentially of course.
The consummation proved a damp squib for Ireland. Michael’s spinners issued a po-faced press release, lacking in credibility. The statement explained that it was a “coincidence that she was a candidate for the IMF”. No progress was reported on the interest rate.
Michael enthused about Christine’s suitability for the IMF gig. His spinners insisted that the vacancy should not be decided on geographic region, but on quality. Christine was the quality candidate. Our Finance Minister, fresh from his date with Christine, was peddling the lady’s line that her European pedigree was irrelevant. Quite a contrast with the Taoiseach and Lucinda’s assertions that they preferred a European.
The routes might have been different, but all roads led to Christine. All the ministers were on message, even if the reasons given for their decision were contradictory.
The Government quartet probably got their wires crossed in their stampede to endorse Christine. Enda wanted her because she is a European. Michael wants her because she is a wonderwoman. His account of the meeting gushed on about her, dubbing Christine as an “excellent candidate, very capable, who not only fulfils the qualities that we would require in the job, but would be in a position that would assist us to meet the requirements of our programme”.
Michael even told the media that Lagarde has a “strong appreciation” of the Irish position on corporate tax.
She can stuff her appreciation. We needed a concession. None came.
Indeed she has never shown any sign of “appreciation” before she became interested in the IMF job. Until last week, she was the mouthpiece of Nicolas Sarkozy — the most implacable enemy of our corporate tax rate living on the planet.
Irish Government sources are spinning that the hawkish Christine is a secret sympathiser with our corporate tax regime. She is apparently a covert dove, wishing to aid our efforts to reduce our crippling interest rate on the EU/IMF loan. Once she is in New York in Dominique’s old job, she will be free of the shackles of Sarkozy and will emerge as a champion of our cause. So say the spinners.
There is not a shred of evidence on the public record to suggest that she will change her spots. The French president is hardly aware of it. Noble Nicolas was lobbying frantically for Christine at the G8 summit in Deauville on Thursday.
If Christine is really a friendly sleeper batting for Ireland, surely we should try to keep her locked in the Elysee Palace, constantly at Sarkozy’s side moderating his militant exploitation of our difficulties? Remember the words of Hilaire Belloc: “Always keep a hold of nurse for fear of finding something worse.”
If Christine escapes across the Atlantic, far away from the grip of Nicolas, perhaps he will install an even more hardline finance minister?
The charade of Ireland cheering for Christine hardly adds up. So why are we leading the charge?
Part of the reason could be that both Michael and his predecessor, Brian Lenihan, have both succumbed to the legendary charms of the French femme fatale: but even in the overwhelmingly male world of European finance ministers, human frailties cannot provide a full explanation.
The root cause is more alarming. We have pawned the nation’s future in the hands of Europe’s bully boys. At the beginning of the week, as Christine’s campaign gained momentum, we were terrified of being seen as reluctant supporters. We are now too deep in the European manure to pull out.
So we began to bandwagon. There was no point in alienating Christine if she was a certain winner.
What a craven piece of diplomacy. Yet it is part of a pattern. Both recent Irish governments have refused to stand up to ECB boss Jean-Claude Trichet, German Chancellor Angela Merkel, French President Sarkozy and their banker friends. We have bowed the knee to their diktats on sparing the bondholders; we have refused to default; we have begged them in vain to reduce their penal interest rates; we have become their puppets.
In return for our acquiescence we are the victims of German and French ingratitude, fending off demands that we face final ruin by giving up our last lifeline — our 12.5 per cent corporate tax. Charming Christine has been in the vanguard of our European “friends” determined to kick us with her stiletto when we were on the canvass.
Instead of accepting our humiliation we should have kept our own counsel. Michael should have indulged himself in his well-practised brooding mood. We could have seized the high ground, pointing out that there are several other good candidates; that Europe hardly speaks with one voice as the big powers decide the fate of the smaller ones; that the policies of Christine are not those of Ireland.
Even more credibly, we could have offered a highly convincing reason for a delay. On June 10 a French court will rule on whether to investigate fragrant Christine over a very serious €240m arbitration settlement with Bernard Tapie, a convicted ex-minister who backed Nicolas Sarkozy.
Our haste to endorse Madame Lagarde, despite this cloud hanging over her candidacy, underlines our desperation.
It never pays to love bomb your tormentor.
The Queen of England is gone back to England so you can get up off your knees Lads and we don’t need a new Queen imposed on us by the IMF or the EU .