February 28, 2024

Lagarde, New I.M.F. Chief, Rocks the Boat

EARLIER this month a phalanx of limousines and black vans lined up near the Palais du Pharo, an imposing Napoleonic-era chateau here whose chandeliered halls had been temporarily transformed into a bunker.

Chauffeurs had just dropped off precious cargo — the dark-suited finance ministers of Germany, France, the United States and the four other wealthy nations that form the Group of 7. The officials were gathering for a working dinner to talk about the swirling European debt crisis, which, despite their concerted efforts, seems to worsen by the day.

Their eyes soon turned toward Christine Lagarde, the new managing director of the International Monetary Fund. Not so long ago, she was one of them. But almost as soon as she crossed the Atlantic to take up her post in Washington, she had morphed into someone who now slightly bewildered them.

Ms. Lagarde had gone independent.

In the few short months since becoming the first woman to lead the monetary fund, Ms. Lagarde, 55, had taken her former European colleagues to task for not talking with a single voice to save the euro. In speech after speech, she had warned that the austerity that Europe was pressing on Greece and its debt-weakened neighbors was choking economic growth and needed to be tamed.

Worse, as far as the men seated in the room were concerned, Ms. Lagarde was partly responsible for the collapse of confidence bedeviling the financial markets. She had dared to state what few of them would admit publicly: European banks were not as sheltered from this storm as they might seem.

Was this the International Monetary Fund talking? It was now, under Ms. Lagarde. As the future of the euro hangs in the balance, she is emerging as a European who is willing to speak openly about Europe’s problems.

If Greece defaults on its government debt, as many predict, and Europe’s banks stumble, as some fear, the reverberations would be felt around the world. The next domino would be Italy, itself a member of the Group of 7. The Obama administration, alarmed by the possible spillover effects, is pressing European leaders to act decisively.

The monetary fund is already overseeing multibillion-euro bailouts in Greece, Ireland and Portugal — a situation that would have been unthinkable just three years ago. So, as much as anyone, Ms. Lagarde will help determine whether the union that has bound 17 European nations together, in the biggest postwar effort to ensure peace through economic stability, survives.

“Her first couple of months have been reassuring for those who feared the appointment of a European from a euro zone economy at a time of crisis,” says Simon Tilford, the chief economist of the Center for European Reform, a London research group that supports European integration. “She recognizes that the I.M.F. has to distance itself from the euro zone policy elite and its strategy for the crisis, which is clearly not working.”

At the annual meetings of the monetary fund and the World Bank continuing in Washington, Europe has dominated the discussion. In an announcement that added to the gloom in world markets last week, the fund cut its forecast for global growth and warned of worldwide economic repercussions if Europe couldn’t solve its debt problem soon. Ms. Lagarde’s lieutenant, the monetary fund’s chief economist, Olivier Blanchard, said the Continent needed to “get its act together.”

WHETHER MS. LAGARDE can do much to contain this crisis is uncertain. Sometimes her blunt talk has made a bad situation worse, and she has backpedaled after overstepping her bounds. In August, the share prices of Société Générale, Deutsche Bank, and many other big European banks tumbled after she proclaimed that European banks were in “urgent” need of capital.

Irritated European officials and an even angrier banking establishment scrambled to control the damage. Christian Noyer, the governor of the French central bank and a friend of Ms. Lagarde, declared: “Quite frankly, I don’t understand what she said.”

Now, on this sweltering September evening in Marseille, finance officials pressed Ms. Lagarde to ease up. A senior American official let it be known that the monetary fund was starting to retreat on estimates that Europe’s banks might need at least 200 billion euros of capital. The next day, Ms. Lagarde appeared before reporters to say that that figure was “tentative,” and that the monetary fund was now discussing the final numbers with its European partners.

Article source: http://www.nytimes.com/2011/09/25/business/economy/christine-lagarde-new-imf-chief-rocks-the-boat.html?partner=rss&emc=rss

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