Euro Zone Crisis Has Increased I.M.F.’s Power

One was Chancellor Angela Merkel. The other, who delivered the keynote speech, was Christine Lagarde, the managing director of the International Monetary Fund.

Ms. Lagarde’s presence reflected her close, longtime friendship with Mr. Schäuble. But it also was a confirmation of the enormous stature that Ms. Lagarde and the I.M.F. have acquired in Europe as a result of the euro crisis.

The I.M.F. has more say over crisis management than many euro zone members, and Ms. Lagarde has become a quasi head of state, whose views carry more weight than those of many elected leaders. Without the I.M.F.’s money and advice, the euro zone might have fallen apart by now.

Because she has Mr. Schäuble’s ear and respect, Ms. Lagarde has also played an important role overcoming German reluctance to accept proposals designed to strengthen the euro zone, like a centralized bank supervisor.

Recently, there have been signs that Ms. Lagarde could be nudging Mr. Schäuble and the German leadership to moderate their views on an issue that is central to the crisis: the degree of austerity that should be imposed on countries like Greece and Portugal. For most of the past three years, the I.M.F. and Germany have insisted that aid recipients must cut government spending and raise taxes. But lately Ms. Lagarde has been arguing that too much austerity could be counterproductive.

A shift by the I.M.F. would transform the debate in Europe. But the fact that the organization is so tangled in European affairs is controversial both inside and outside the Continent, and could be a source of discord as the I.M.F. and World Bank hold their spring meetings in Washington. The policy-making bodies of both organizations meet on Saturday, while related conferences and other events began on Monday and continue through Sunday.

Poorer nations that contribute to the I.M.F.’s funding have grumbled about having to prop up rich Europe. More than half of the I.M.F.’s lending goes to the euro zone, from virtually nothing a few years ago. The I.M.F. has contributed about a third of the money used to rescue countries like Portugal, Ireland and Greece, with the rest coming from other euro zone countries.

“Historically, Europe took no I.M.F. lending,” said Guntram Wolff, the deputy director of Bruegel, a research organization in Brussels. “Now lending has increased since the beginning of the crisis dramatically. Is it appropriate? That is a very big question.”

Leaders and citizens of countries like Greece, Portugal and Ireland have complained bitterly about the terms that the I.M.F. has imposed in return for loans. In addition to budget cuts and tax increases, governments have been pressured to roll back rules that protect some workers from dismissal and impose other unpopular changes. Even if the I.M.F. is rethinking its stance on austerity, it will continue to demand strict conditions because that is the only leverage the organization has to get its money back.

Ms. Lagarde, the former finance minister of France, is perceived as less doctrinaire than the Germans, but she was at the table last month when leaders negotiated an ill-fated plan to make ordinary bank depositors help pay for a bailout in Cyprus. Although the I.M.F. had reservations about imposing a levy on insured depositors in Cyprus, Ms. Lagarde went along with the accord. After an outcry, the plan was revised to put the burden on large depositors.

But even those who have doubts about the I.M.F.’s role in Europe see no alternative. The organization will inevitably be a force in Europe for years to come, because of the money that it has lent and because of its traditional role as watchdog over the economic and budget policies of its members.

“If the I.M.F. wasn’t participating at all, the crisis would have been worse,” said Morris Goldstein, a former deputy director of research at the I.M.F. who is now a senior fellow at the Peterson Institute for International Economics, a research organization in Washington.

Besides the money the I.M.F. has provided, which comes from members including the United States and Japan as well as those in Europe, the organization has played the role of outside expert, aloof from national politics. In the absence of a strong federal government in Europe, Ms. Lagarde helps impose order on quarreling national leaders.

Article source: http://www.nytimes.com/2013/04/18/business/global/euro-zone-crisis-has-increased-imfs-power.html?partner=rss&emc=rss