December 4, 2021

French Court Puts Off Decision in Lagarde Case

As Ms. Lagarde prepared to hold her first I.M.F. board meeting on Friday to consider another $3 billion in emergency financing for Greece, the French Court of Justice, which oversees the actions of ministers in office, said it would delay until Aug. 4 a decision on whether to look into her handling in 2007 of a court case involving a French tycoon.

It was the second time in a month that the court had postponed a ruling. A court official said one of the judges had recused himself, Reuters reported. The delay means another month of legal uncertainty hangs over Ms. Lagarde.

“It’s a bit surprising,” said Christopher Mesnooh, a partner in international business law at Field Fisher Waterhouse in Paris. “Given the high-profile conditions under which she replaced her predecessor at the I.M.F., one might have thought the court would have wanted to provide legal certainty today, to allow Madam Lagarde to commence her functions with a clear mind.”

Ms. Lagarde ushered in a new era at the I.M.F. on Tuesday as the first woman to hold the post of managing director, one of the top positions in international finance. She met at the fund’s headquarters in Washington with employees still ruffled by the resignation of her predecessor, Dominique Strauss-Kahn, after he was charged with the sexual assault of a hotel maid in New York. Her contract contains a section on conduct and ethics that requires her to “strive to avoid even the appearance of impropriety.”

At issue in the French court case is whether Ms. Lagarde abused her authority as finance minister in one of France’s longest-running legal dramas.

In 2007, she ordered that a dispute between Bernard Tapie, a flamboyant French businessman and friend of President Nicolas Sarkozy, and Crédit Lyonnais, a state-owned bank, be referred to an arbitration panel. The panel ultimately awarded Mr. Tapie a settlement of about $580 million, including interest.

Mr. Tapie, a former chief of the Adidas sports empire and a former Socialist minister who changed political loyalties to support Mr. Sarkozy’s 2007 presidential campaign, accused Crédit Lyonnais in 1993 of cheating him when it oversaw the sale of his stake in Adidas.

Mr. Sarkozy suggested that the Finance Ministry, which was overseeing the case because Crédit Lyonnais was a ward of the French state, move the case to arbitration.

Ms. Lagarde defended her role in the case again this week, telling French television that she had “exactly the same confidence and peace of mind” whether the court decided to pursue investigations or not.

If the court decides later to investigate, Ms. Lagarde will have to gird for a possibly lengthy legal process, although she would not necessarily be required to be present in France.

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Europe Persists in Seeking a Solution for Greece

“We’re continuing to work for a possible solution,” Michel Pebereau, chairman of BNP Paribas, the biggest French bank, said at the Paris Europlace conference, a gathering attended by hundreds of international bankers. Both the French and German banks have put proposals forward, he said, and “If those doesn’t work out, we’ll come up with something else.”

Several other bankers said the important thing was that banks had begun to work together to solve the crisis, and the fact that the stakes were so big meant they would find a way forward.

“Everyone here is anxious,” said one executive with the French unit of a major American financial institution, who said he was not authorized to speak on the record. “Everyone is interconnected. It’s not just a problem for Greece. All the banks are nervous and strongly desire a solution.”

Standard Poor’s said Monday that a proposal by French banks for helping Greece to meet its medium-term financing needs would constitute a de facto default, as banks would be required to roll over loans for a longer term at a lower interest rate. That deflated hopes that Greece’s problems might be brought under control soon.

French bankers had not contacted the ratings agencies before publicizing their proposal to roll over Greek debt to determine whether the agencies would consider such an action to constitute a form of default. “The French banks jumped too soon,” said one banker who was involved in designing the proposal.

French and German bankers were scheduled to meet Wednesday in Paris with central bank officials, under the auspices of the Institute for International Finance, which groups the world’s biggest financial companies, to discuss the way forward, according to people briefed on the plan who were not authorized to speak publicly.

They are to discuss not only the definition of “selective default” put forward by Standard Poor’s but also what would constitute a full-blown default, the people said. The difference is crucial, because in the latter case the European Central Bank would not be able to accept Greek debt as collateral.

Euro-zone finance ministers last week reached a deal to keep the Greek government operating through the summer but put off the question of how to provide a second bailout to meet its financing needs through 2014.

There is wide agreement that some kind of debt relief is necessary, and officials, particularly in Germany and the Netherlands, want banks to bear part of the pain of a debt restructuring. Negotiations are complicated by the fact that a declaration of default by the ratings agencies could cause a dangerous escalation of the crisis.

The German chancellor, Angela Merkel, said Tuesday that the opinions of the International Monetary Fund, the European Central Bank and the European Commission should be given more weight than those of the rating agencies, The Associated Press reported from Berlin.

“I trust above all the judgment of those three institutions,” Mrs. Merkel said.

Bank executives said the assessment of the International Swaps and Derivatives Association — whose members hold much of the Greek debt and the credit default swaps based on it — would probably be more important, in the final analysis, than that of the ratings agencies.

A Standard Poor’s rival, Moody’s Investors Service, said Tuesday that banks might have to book losses on their existing Greek bonds if they chose to roll over the maturing debt.

While European officials were trying to come up with a workable Greek bailout, the German government was defending itself against a lawsuit seeking to block its participation.

Speaking to the Federal Constitutional Court in Karlsruhe, Finance Minister Wolfgang Schäuble argued that the government had no choice but to back aid for Greece.

“A common currency can’t do without the solidarity of all members,” The Associated Press quoted Mr. Schäuble as saying.

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A Favorite Emerges for Helm of I.M.F.

Ms. Lagarde looked him in the eye. “The best way for the banking sector to say thank you would be to actually have, you know, good financing of the economy, sensible compensation systems in place and reinforcement of their capital,” she replied, to a burst of applause.

Her straight talk has helped burnish Ms. Lagarde’s reputation as one of Europe’s most influential ambassadors in the world of international finance.

And now it is helping to make Ms. Lagarde, 55, perhaps the leading candidate to succeed her friend and colleague Dominique Strauss-Kahn as head of the International Monetary Fund. There is growing pressure on Mr. Strauss-Kahn to resign his post as the I.M.F.’s managing director to deal with charges of attempted rape, stemming from his encounter with a hotel maid in New York last Saturday.

Another of Ms. Lagarde’s selling points, though, may be one not listed on her résumé.

“What’s happened with Strauss-Kahn underscores how great it would be to have a woman in the role,” said Kenneth S. Rogoff, a former I.M.F. chief economist who is now a professor at Harvard University.

If she gets the post, Ms. Lagarde would be the first woman to run the I.M.F. — or any large international financial institution, for that matter. But Mr. Rogoff indicated gender was only part of her appeal.

“She is enormously impressive, politically astute and a strong personality,” he said. “At finance meetings all over the world, she is treated practically like a rock star.”

European officials are frantically maneuvering to keep one of their own in a post Europe has controlled since the I.M.F. and the World Bank were created in the late 1940s. It will not necessarily be easy. Three years after financial excesses in the United States and Europe brought the world economy to the brink of catastrophe, Mr. Strauss-Kahn has become the latest symbol of what many see as the faults of the wealthy West.

Appointing simply another European, particularly another white middle-age male, might not fly this time.

The world’s fast-growing emerging economies say they should now get a shot at running a big institution like the I.M.F. — or the World Bank, traditionally headed by an American in a long-standing understanding between the two economic powers.

But with Europe facing a drawn-out financial crisis of its own, global leaders may consider it politic for a European to finish serving out Mr. Strauss-Kahn’s term, which ends in 2012. That might then create an opening for a leader from one of the emerging markets — from South Africa or India, for example — whose collective economic heft and effect on global markets is starting to eclipse that of the West.

That is why Ms. Lagarde is seen as Europe’s lifeline. Her main competition,, analysts say, is another policy maker with an alternate profile, Kemal Dervis, a former finance minister of Turkey. Mr. Dervis is credited with rescuing the Turkish economy after it was hit by a devastating financial crisis in 2001, in part by securing a multibillion-dollar loan from the I.M.F. Before that, Mr. Dervis worked at the World Bank for 24 years.

But with the I.M.F. overseeing 100 billion euros (around $140 billion) in loans to Greece, Portugal and Ireland, Ms. Lagarde may be the best person to steer a transition at the I.M.F., analysts says, even if President Nicolas Sarkozy of France has not yet moved to put her in the running.

Ms. Lagarde has kept quiet about the rumors circulating about her potential candidacy. As one French official put it: “She knows that whatever she says will only diminish her chances. It’s best to stay above the fray and see what happens.”

But French officials do not doubt her ambition to move to I.M.F. headquarters in Washington if the opportunity arose. “She is without a doubt one of the top candidates people are talking about right now,” a French diplomat said.

Ms. Lagarde’s biggest drawback as a candidate, perhaps, is that she is French — like Mr. Strauss-Kahn. But recent history suggests that that is not a disqualifier. Between 1978 and 2000, two Frenchmen — Jacques de Larosiere and Michel Camdessus — were the successive chiefs of the I.M.F.

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