by Moyara deMoraes Ruehsen
–USA–
UPDATE: Yesterday, the IMF’s board blocked Bank of Israel governor Stanley Fischer from the race for the top IMF job. -Ed.
With her distinctive silver coiffure and impressive couture wardrobe, it is hard not to take notice of Christine Lagarde, France’s highly-respected Finance Minister. But let us not forget that beneath that elegant exterior is an impressive mind, a wise and experienced manager with proven leadership skills, an astute negotiator with keen diplomatic instincts, an eloquent and insightful orator, and most important of all: a person of integrity.
But do these traits alone qualify someone to head the International Monetary Fund? As one of three leading candidates and currently the odds-on favorite to be the new Managing Director of the IMF, Madame Lagarde’s candidacy is not without controversy. Is she the odds-on favorite because she is a woman? Is she the odds-on favorite because she is European and the top IMF job has traditionally gone to a European? Is she truly qualified to lead the organization without a graduate degree in economics?
It is no accident that when Dominique Strauss-Kahn was forced to resign his post as IMF managing director, Christine Lagarde was immediately touted as a possible successor. Considered a “rock star” of finance for her handling of the financial crisis in France, the enthusiasm for her candidacy was palpable even before she officially threw her hat into the ring. It is regrettable that most of her public supporters cite her gender and nationality.
The female factor is on everyone’s mind in view of the attempted rape charges filed against the outgoing director, coupled with a perception (true or not) of a male-chauvinist culture at the Fund. And her European nationality is a factor for both the old school policy makers, who wish to honor the long-standing gentleman’s agreement that the head of the Fund be a European, and for European politicians, who want a European at the helm to oversee the ongoing sovereign debt crisis in the peripheral eurozone economies.
Does this imply that maybe she is not the most qualified candidate, but because she is a woman and because she is European, she should be selected? This is patently insulting to all female leaders. When German Chancellor Angela Merkel called her “an ideal embodiment of economic experience and political experience,” and Hillary Clinton expressed her admiration for her, their comments drew little attention, perhaps because they came from other women. As the only female candidate in the race, if she wins, will sore losers grumble that it was because she was a woman?
And what of her European nationality? When the IMF and World Bank were created after World War II, there was an unwritten gentlemen’s agreement that the head of the Bank would always be an American and the head of the IMF would always be a European. But for many years the world’s emerging market economies have been calling for greater representation, singling out the IMF directorship as one that should go to an emerging market candidate.
The only authentic emerging market candidate being given serious consideration is Agustín Carstens, Mexico’s central bank governor, and deputy managing director of the IMF from 2003 – 2006. Other serious contenders from Turkey and South Africa dropped out early on or refused to accept their nominations. Stanley Fischer, a former 1st deputy director of the IMF who threw his hat into the ring at the 11th hour, is currently Israel’s central bank governor, and although he was born in Africa, he also holds U.S. citizenship and lived most of his life in the United States.
The job description for the post emphasizes that the selection process will be merit-based and transparent, and open to “a national of any of the IMF’s member countries.” The description goes on to say that “the successful candidate for the position will have a distinguished record of economic policymaking at senior levels…capable of providing strategic vision…building consensus…and be an effective communicator.” Given these criteria, Madame Lagarde certainly outshines Señor Carstens. And though Stanley Fischer could also fit this description, Mr. Fischer has two counts against him. First, he is tainted by his prominent role in the IMF’s much-criticized rescue plan for Asia in 1997 and 1998, and second, the IMF’s bylaws currently require that the Managing Director be no older than 65. Mr. Fischer is 67.
Madame Lagarde is determined to win the job on her own merits. Hoping to dismiss the issue of her French citizenship (four of the past ten directors have been French), at the start of her campaign she announced, “The fund does not belong to anyone. Management does not belong to any single nation or region. Equally, you should not be banished or punished because of your nationality.”
Although there remains the question of whether she can address the ongoing European debt crisis with objectivity, her record speaks well. She has no patience for fiscal profligacy and does not beat around the bush. Last month, she reiterated her stance when she insisted, “We [the ECB, the European Commission, and the IMF] are delivering on our side. Greece has to deliver as well. Restructuring is off the table. I have said that over and over and over and I stick to the same line.” She has paid the price for her unique, non-European brand of frankness, generating much flack in the media, especially the French media, which she is admirably able to shrug off.
Regarding the critique that Christine Lagarde is a non-economist with no banking experience, perhaps this can work in her favor given the dismal record of the profession leading up to the 2008 financial meltdown. While most of the former directors have had traditional PhD’s in economics, the director’s job is a manager and negotiator, not a technocrat. The job description calls for “a distinguished record of economic policy making,” and Madame Lagarde has at least as much significant experience with economic policy making at the international level as any of her competitors.
Though Madame Lagarde’s degree is in law, she successfully completed graduate-level courses in economics, and is more eloquent and articulate in describing and debating economic issues than most economists. In addition, Madame Lagarde has impeccable management experience.
Nineteen years after joining the Paris office of the prominent international law firm of Baker & McKenzie, she “rose by the elevator of her own talent” to become chairperson of the Chicago-based firm in her mid-40’s. Her former male colleagues have since been singing her praises. Mitchell Gitin wrote in a letter to the Financial Times that “she was a transformational and inspiring leader at a time when the firm needed one, and had a genius for forging consensus and achieving radical change when it was required.”
Christine Lagarde is highly respected by many prominent PhD economists. Kenneth Rogoff, the former chief economist of the IMF, called her “enormously impressive.” In 2009, the Financial Times newspaper voted her European Finance Minister of the Year. This year she chaired the G20, G7 and G8 finance ministers meetings, and although the rotating chairmanship is assigned arbitrarily, she commanded the respect and admiration of her exclusively male colleagues.
Madame Lagarde’s lack of banking experience is probably an asset, not a liability. She was as strident as a schoolmarm when scolding the naughty banking boys who paved the way for the 2008 financial meltdown. At the World Economic Forum in Davos six months ago, she admonished (to much applause) the head of Barclays Bank after he expressed a “heartfelt thank you” to the banking regulators and the G20 economic ministers for rescuing the banking sector during the 2008 crisis. She famously declared, “The best way for the banking sector to say thank you would be to actually have good financing for the economy, sensible compensation systems in place, and reinforcement of their capital.”
This race for the top spot at the IMF, scheduled to come to a conclusion on June 30, is generating more publicity than any before it. That a woman happens to be the most qualified and suitable candidate for the position is a victory for all women and for the traditionally male-dominated world of economic policy making.
Let us hope that Christine Lagarde is chosen for her indisputable merits, without any backlash from the old boys’ network of PhD-holding economic technocrats or emerging market countries crying out for more representation. She has the opportunity to change the corporate culture at the IMF and to end the monopoly of conservative, Chicago-school economists, who since the Asian financial crisis in the 1990s have been lamentably behind the times.
Christine Lagarde is ready to reach out to the world’s emerging market economies, recognizing that they deserve a seat at the table. As she recently acknowledged, “with an institution with so many different people with different backgrounds, there’s a need for respect and tolerance.” It is no accident that she has focused her campaign on the BRIC (Brazil, Russia, India, China) economies, paying visits in the past two weeks to officials in Brazil, India and China to gain their votes and reassure them of her commitment to making the IMF more responsive and representative of all of its member nations. Let us hope that her efforts yield a successful outcome.
About the Author
Moyara deMoraes Ruehsen is a Brazilian-American economist and Associate Professor in the Graduate School of International Policy and Management at the Monterey Institute of International Studies. She has three graduate degrees (two Masters degrees and a PhD) from Johns Hopkins University and teaches courses on Emerging Market Economies, International Finance, and Money Laundering.
This is wrong on many counts.
First, it is disingenuous to claim that no one should consider that Lagarde is a woman when making the decision, but that it will be a triumph for women if she is chosen.
Second, it is simply wrong to claim that no one should consider that she comes from Europe in general and France in particular. The IMF’s long and terrible history is one of asserting European and American power over struggling countries when they are at their most vulnerable. Now, as the emerging economies share an increasing load at the IMF and as the IMF becomes the lender of last resort not to the third world, but to Europe, it’s well past time to change that history. It’s time for someone outside of Europe and the US to run it. And it is particularly wrong for someone from France to run the IMF. That’s because France is significantly exposed on loans to Greece and so it’s hard to imagine that someone from France will be impartial with regard to the matter.
Third, it is wrong to say that Lagarde has done a good job of navigating France through the economic crisis. In fact, France is heavily indebted, its economy is barely growing (by some measures it isn’t growing at all) and today France received negative warnings from the ratings agencies. In fact, Lagarde is likely to feel enormous pressure to protect French bank loans to Greece because that will help her to save her country from her bad stewardship.
It’s amusing in this context to read a positive comment about Lagarde’s absurd insistence that Greek debt should not be restructured. In fact, almost all economists agree that the debt will have to be restructured. Moreover, the reason that Lagarde is being so adamant about not restructuring is that restructuring would be devastating to French banks and the French economy, which can ill afford more setbacks.
I have no problem agreeing that Lagarde’s lack of a Ph.D. in economics does not disqualify her. What disqualifies her is that she’s a bad economist who has insisted on her conservative political and economic views in the face of overwhelming evidence that they are wrong.
I agree wholeheartedly with this article.
I also agree with many of the points made by the previous commentator, but with respect, I think s/he needs to have another look around. It is true that the IMF and World Bank have forever been dominated by Europeans and Americans, and that France has held a dominant presence in the IMF.
That said, where is this dream candidate? Where is the emerging-market, outsider, super-star that outshines the impressive list of Lagarde’s accomplishments? And rest assured, the list – as the article demonstrates – is long.
While many of the comments made against this author’s assessment are valid, they completely miss the point at hand, mainly – is Christine Lagarde the best candidate for the job? And in light of the other prospects the world has offered up I would say that, clearly, that the answer is “yes.” If one is truly concerned with bringing about equality between countries and ending historic favoritism and prejudice, it would not be good to start to create new prejudices and lose-out on a potentially great leader.
Putting aside that shargii chose to ignore my comments about Lagarde’s poor performance for France and her terrible position on Greece, it’s important to address the statement that there are no other viable candidates. To begin with, there is the current competitor, Carstens from Mexico. While the author of the article dismisses him as inadequate, she doesn’t explain why.
But consider also candidates from Asia:
Kuroda, the head of the Asia Development Bank. Indrawati (a woman, incidentally) from Indonesia. Aziz (also a woman) from Kuala Lumpur. Min Zhu, from China, who currently advises the IMF.
This doesn’t even mention South Americans or Africans.
Does sharqii really believe that none of these people is capable of doing what Lagarde can do? Why? On what basis has he or she made the decision that Lagarde is the best of all these possibilities?
We live in a Western-centric world…one that doesn’t permit most of us to even consider that the expertise and leadership we seek could possibly be found outside of that world. But we’re wrong. Lagarde is not only not a good economics minister for France. She’s the wrong person at the wrong time for the IMF. And there are many, many people in the continents other than North America and Europe who would be better.
Very nice. I think you hit all the main angles here and the analysis makes sense.
Madame Lagarde would very much appreciate your insight, had you become her adviser…I think she’s unquestionably the best candidate to lead the IMF right now, but I’d have liked to see a “change of venue” since what you called a “gentlemen agreement” should come to an end…specially because there almost no “gentlemen” left to uphold the agreement…but also because other global players (Brazil, China) must have a more visible role in international institutions…
Great article. I agree with the author.
I love the way you interlaced the women’s issues/question and the qualifications and track-record of Christine Lagarde.
Christine Lagarde has my vote – a strong and capable person who happens to be a woman. Thank you for this clear and insightful article.
Nicely written.
LaGarde gets my vote. Tall and thin beats both short and thin and short and fat, judging by the accompanying photos.
Dear Dojero,
Thank you for your comments. I would like to respond to each of your points in turn.
First, regarding the “disingenuous” accusation, I stick by my claim that her gender should not be considered, because I tried to make the point that we’re not asking for affirmative action here. She should not get the job because she is a woman. Rather, she deserves it because she is the most qualified candidate. But why is it then still a triumph for women? Because women in all walks of life are regularly passed over, even when they are the most qualified candidate. We often have to work much harder than our male colleagues to get recognized. This is rapidly changing in OECD countries, but having lived and worked on three continents, I have seen that workplace gender discrimination is still omnipresent. So it is a triumph that a woman, who deserves the job on her own merits, is actually getting it.
Second, just as we shouldn’t have affirmative action on gender grounds, we shouldn’t have it on nationality grounds. Yes, the tradition of reserving the managing director position for a European is ridiculous. But it’s not out of the question that a European might be the best candidate for the job, which in this case, she is. As for not explaining why Carstens isn’t qualified, he lacks the leadership qualities required of a managing director. A leader needs to be, among other things, a great communicator if they are to inspire diverse players to negotiate and act. Check out a recent speech he gave to the Peterson Institute.
One word: dreadful. I have only heard him in English, but I suspect he is just as soporific in Spanish.
As for your portrayal of the IMF as an institution “asserting European and American power over struggling countries when they are at their most vulnerable,” I think you are ill-informed as to how and why the IMF functions the way it does. Yes, they may have gotten their prescriptions wrong with Asia in 1997-98, but the IMF has played an important role in many instances in preventing total economic collapse. Whereas the World Bank provides long-term loans for economic development, the IMF’s mandate is to provide short-term loans* on an emergency basis (*the short-term role has evolved a little with some of the highly indebted African countries) when countries experience an urgent balance of payments crisis. Countries go to the IMF only as a last resort, when no one else will lend to them. The IMF offers to lend the country funds at incredibly low rates in their greatest time of need, but the IMF doesn’t want to pour money down a black hole. That would be foolish. It asks that the country receiving the emergency funds do what it can to get its fiscal house in order so the situation doesn’t become chronic. This is what the troika is trying to do with Greece: force the tax and spending policy changes that need to be made. I have little sympathy for the citizens of Greece who were able to retire in their early fifties on comfortable government pensions or who regularly cheated on their taxes.
Re: her performance as a Finance Minister, I stick by the evidence I presented, and would argue that some of the reforms she has pushed for (and which you seem to oppose on ideological grounds) such as making the labor market more flexible, have actually helped France. That they are still struggling, is probably because the French labor unions have not evolved to the same extent as the German labor unions. This is not Lagarde’s fault. She has been fighting the good fight. And she is not afraid to take unpopular positions even if it means drawing the ire of entrenched interests. She has taken positions that have been wildly unpopular with the big banks, for which she has been unapologetic. She is bold and courageous, and that is what the IMF needs right now.
As for her “absurd insistence that Greek debt should not be restructured”, what she was doing was sending a very clear message to the Greeks that they could not avoid painful austerity measures by simply threatening to default. She is very insistent that they do whatever is necessary to pay back the loans they were originally given.
Turning now to your reply to Sharqii and the issue of viable candidates. I’ve already explained above why Carstens is not a worthy candidate. Regarding the Asian “candidates” you mention, I assume you mean “candidates” theoretically, since they were not officially nominated by their governments. But also, none of them is the “dream candidate” that emerging markets are looking for. Kuroda is Japanese, and therefore not an emerging market representative, but regardless, he’s also not a dynamic speaker. A leader needs to inspire and motivate, and speaking skills are hugely important. Min Zhu or Zhu Min certainly has the economic credentials on his resume, and while he is a more dynamic speaker than Kuroda, his command of English is poor, and English is still the main language of commerce and the language of international economic policy making today.
Regarding the two female candidates you mention, they are a little more interesting, but not because they are women. By “Aziz from Kuala Lumpur” I assume you mean the head of Malaysia’s central bank, who more frequently goes by the moniker “Dr. Zeti.” She has an impressive grasp of the issues, but again, is not as forceful a speaker, and hasn’t had as much experience on the world stage. I don’t see her as a stand-out candidate at this point. She is certainly capable of being a great deputy director, but the managing director needs to broker international deals effectively, and Dr. Zeti needs to demonstrate more experience in that realm.
My favorite of the ones you mention is definitely Mulyani Indrawati, who is currently managing director at the World Bank. She is still relatively young and not as experienced on the world stage as Lagarde, but like Lagarde, she will not put up with any nonsense. She is most famous for taking a stand in fighting corruption in her own country. It so happens that I praised her in a blog to my international economics students more than a year ago, when she was allegedly pressured to leave the finance ministry presumably by the corrupt politicians who felt threatened by her reforms. I love it that she is brave and principled. She is talent worth cultivating. Perhaps Indrawati will get more exposure and experience in the coming years negotiating international disputes in her new position at the World Bank. It would then be a seamless transition for her to segue into the managing director position across the street at the IMF one day.
As for other candidates from other parts of the world, two standouts that come to mind without researching the matter would be Linah Mohohlo, the Central Bank Governor of Botswana http://www.bankofbotswana.bw/index.php/content/2009102212149-governor and Riad Salameh, Lebanon’s Central Bank Governor. (But would their respective countries be willing to give them up?) Linah Mohohlo is widely respected among those who know her, and she is famous for being highly principled and incorruptible. Salameh is most famous for his expert handling of Lebanon’s 2006 financial crisis that followed Israel’s invasion that summer. He has won several Best Central Bank Governor of the Year awards. There could be some objections to his candidacy from the US, which is not so happy with what they perceive to be weak international sanctions compliance by Lebanese banks.
To be considered viable in the future, both of these candidates would have to “campaign” for more recognition and seize more opportunities to showcase their talents on the world stage, with prominent speaking roles at international forums and involvement in brokering important international agreements. We have to remember that the job of managing director is one of diplomacy and deal brokering. The job requires a little charisma, savvy negotiating skills, and masterful communication skills, in addition to a solid understanding of the issues at stake.
I appreciate your sensitivity about “Western-centrism”, but I think the facts speak for themselves. Lagarde has impressive leadership skills (knowledge, insight, communication skills, negotiation skills,and integrity), and I have yet to run across any other candidate – male or female, of any nationality – who impresses me more.
Respectfully yours,
Moyara Ruehsen
Well written, insightful and clear. Regardless of the
political climate a great candidate just stands out.
I truly hope that Ms. Lagarde is voted in as the IMF managing
director.
Excellent, insightful analysis. Christine Lagarde is probably the best candidate for the job. This is an “economic leadership” position; and none of the other potential candidates that have been mentioned, from all regions of the world, match up to her level of global economic and financial expertise. This is not to disparage the other contenders, who are all highly respected in their own right. But in fact, to stress that a position as crucial as this needs to have a prominent leader who has the international political clout to stand-up to important stakeholders in global economic decision-making. Lagarde fulfills that crucial requirement that most other potential and declared candidates do not.
On a side note, it was quite instructive to note that after her candidacy was announced, she made it a point to go to India and China to solicit support from their governments. It is unlikely that this has happened in earlier selection processes for this position, although I’m willing to be corrected on this point. This itself signals a shift towards the increasing influence of emerging actors like India, China, South Africa (to name just three) in international economic decision-making; a trend which might just be reinforced further the next time there’s a vacancy at the top of the IMF.
I am very appreciative of moraya’s long and well considered response to my comments. While I don’t think this is a forum that can permit continued lengthy discussion, I do want to address a couple of key differences.
First, there is the question of the IMF’s role itself. You say, I am ill-informed as to how and why the IMF functions the way it does. and that the IMF has played an important role in many instances in preventing total economic collapse.
I don’t believe that I am ill-informed. I believe that my view of the role played by the IMF differs from yours because you believe that its loans prevent total economic collapse, while I believe that its loans force countries to sustain economic structures that serve investors and foreign interventionists while allowing poverty to continue unabated. If we look at the role of the IMF in South America, we will see these effects clearly. That’s why the South American countries have worked hard to eliminate the IMF’s influence on their continent. I’d also point out that Joseph Stiglitz, a Nobel prize winner for Economics, has often spoken and written about the IMF’s unfair policies. Effectively, as Stiglitz has pointed out, the IMF has imposed impossible conditions as a part of their lending policy in order to preserve the first world’s capital investments.
You say that the IMF only wants a country to get its house in order and that you have little sympathy for the profligate Greeks.
But the IMF actually asks that a country do far more than it can “to get its fiscal house in order.” In the case of the Greeks, this means reducing the wages of the few Greeks who can keep their jobs to impossibly low levels, while insisting that Greek unemployment rates soar past 20%. As for not sympathizing with the profligate Greeks, I can only say that I have far less sympathy for the lenders who supported the Greeks as they spent their way into oblivion. Yet Lagarde and the IMF don’t think those greedy lenders should suffer at all for their bad loans. Why? Why should the Greek people make unbearable sacrifices and the lenders who made the bad loans make none at all? Please explain why you (apparently) feel sympathy for the French banks that made the loans when there was every reason to know that the Greek economy could not be sustained?
You say that Lagarde pushed for flexible labor markets and stood up to the banks.
And I agree that I am opposed to her labor reforms on ideological grounds, as well as on economic grounds (I don’t believe the French needed more flexible labor markets and I believe workers were ill served by the reforms). But Lagarde most certainly represents the big banks. Her positions against them have been faint and insignificant. Her positions in their favor, including that they should in no way be asked to lose money on their bad loans to Greece, are far more important.
As for the discussion of the candidates, I’d argue that it is less important for the IMF head to speak good English than it is for the IMF head to stand up for the third world countries it is asked to help. I believe that it is less important for the IMF head to care about the lenders and investors and more important for the IMF to care about the people of the countries to whom it is making loans.
In no way does Lagarde qualify by those standards.
And she demonstrated it in her first day in office, by calling upon the Greek people who are demonstrating in the streets to support their own enforced poverty in the spirit of helping the French bankers to be assured of a continuing return on their investments.
With respect,
dojero
One last note. For a view that echoes my own on Lagarde, readers might be interested in looking at this article in The Guardian:
http://www.guardian.co.uk/commentisfree/2011/jun/29/christine-lagarde-imf-feminism
Dear Dojero,
I think you unfairly mischaracterize Joseph Stiglitz’ views. He rightfully criticizes some aspects of the IMF’s conduct and prescriptions (especially in Asia in 1997 and 1998), but he doesn’t question the need for such a body. I would direct you to Globalization and Its Discontents, which you’ve probably read, as have I, and in it he takes some swipes at the organization for failing to consider the impact of its prescriptions on the poorest segments of society (among other things). But the IMF has never pretended to be concerned about that. It doesn’t mean that they shouldn’t be. Rather what they need to do is work more closely with their colleagues across the street at the World Bank, where they do try to focus more specifically on the most vulnerable segments of society.
As for Lagarde, you are spouting knee-jerk ideological conspiracy when you suggest that she is speaking for the banks. If Greece defaults, it will be the first domino in a series of defaults (Portugal and Ireland, followed perhaps by others). This is not about helping the banks (even if they are helped by this, although many of them have been trying to cushion themselves in the meantime in anticipation of a default). This is about saving the eurozone economies!
Are you aware that when she first became finance minister, she proposed introducing a Tobin tax on international banking transactions? Heresy as far as the banking industry is concerned. The idea got no political support, so she had to abandon it.
Also, some of these European banks were forced, yes,forced by their governments, to purchase more Greek bonds than they wanted to. How can you punish them for that?
I agree that in many cases lenders need to bear some of the costs of poorly considered loans, but you have to remember that Greece got into this predicament in the first place because it was lying about its finances and hiding some of its debt. (Yes, one of the big banks, Goldman Sachs, I think, helped them do that, and Goldman Sachs should be prosecuted and punished for that.)
The Greek situation is like the prodigal son who racks up an enormous debt on his credit cards and runs to his parents for a bailout. His parents say, okay, we’ll bail you out here temporarily, but first you have to sell your sports car and golf clubs, stop eating out at fancy restaurants, and stop buying things you don’t really need. I’m with the parents on this one.
Respectfully yours,
Moyara
Dear Moyara,
We have, I think, found the profound ideological differences between us. I do respectfully request that you try not to insist that my ideological framework is somehow unworthy.
I have indeed read Stiglitz and I’m quite comfortable with my description. I’m happy to quote more than his book in this regard; over the years, Stiglitz has become far less tolerant of the IMF and I’m quite confident that he would agree with me not only on the IMF behavior of the past, but also of its approach to Greece. If you need specific citations of Stiglitz’s position on Greece in general and the IMF role there in particular, please let me know and I will be pleased to pass them along. But I’d be surprised if you haven’t already seen and heard Stiglitz on these issues and know that what I’m saying is true.
In the end, you disagree with Stiglitz too, and believe that he (and I) simply ascribe bad motives to the IMF, when really they should be seen as uninterested in the “side effects” of their activities. I disagree.
The Tobin tax continues to be supported by many, many economists and Lagarde is cowardly to drop her request for it. In fact, I’d argue that this proves my point: rather than stand on her original principle, she chose to abandon it in the face of pressure from monied interests.
Your view of the Greek situation is now one on which we can substantively disagree. You believe that the Greeks must suffer enormously because the banks must be saved. This must happen regardless of the banks’ immoral behavior. It must happen because in the end, other countries will fall as well. But none of this reflects the slightest concern for the suffering people of Greece, Ireland, and Portugal.
No matter. The bigger problem with your position is that it won’t work. Because the Greeks cannot pay back their loans. They can’t do it now and they can’t do it if the loans are rolled over. They carry a debt load of 150% of GDP and their GDP is falling. It would have to grow at a rate of 5% every year for the next 30 years in order for them to pay back their loans, and you and I both know that this is an impossible hope.
The EU and the IMF also know that the Greeks can’t pay back their debt. The goal is not for that to happen; the goal is for the banks that will suffer losses to become healthier before they have to suffer those losses. And for the economies of the lending countries to become healthier.
The only practical solution (forget your ideology and mine) is for the Greeks to be permitted to drop from the euro and then devalue their currency. This really becomes simply another way to restructure, of course, since the repayment of the loans would be in devalued currency, but it is the least painful process for all involved. This would also solve the problem of the pouting parents who complain that the Greeks lied to them before being admitted to the EU.
Incidentally, all of that is also a red herring. The truth is that the Germans and the French established the acceptability of exceeding the EU limits for debt long ago. Had either of both of those countries been willing to accept penalties for those violations, they would be in a much better position for wagging fingers. Think of it as the parents who are drunk when the prodigal son comes home yelling at their child that he must stay sober.
Surely, though, you jest about the poor banks being forced by their countries to make these loans. While you may be able to find such examples, the vast majority of the loans were made happily by the bankers with no pressure from anyone. The banks overextended themselves because they weren’t required to maintain capital levels that were sufficient to support such risky loans. Are the countries responsible for that? I suppose to some extent.
So what we really have is a big brother (the banks) crying to his parents (the EU) that his baby brother (Greece) was mean to him and that even though the big brother was stronger, bigger, smarter, and in total control of his actions, this little one should be punished.
I’m with the little brother on this one.
With respect,
dojero
Dear Dojero,
You clearly have a lot more time on your hands to write and answer posts. Looking over your recent reply, I don’t know where to begin. Who said anything about “the banks must be saved”? I didn’t. When you put words into my mouth and alter the meaning of what I have said, I need to walk away, because it’s just not worth the trouble.
– Moyara
Moyara.
A classic response. Well done. My use of the singular phrase “the banks must be saved” is such a gross distortion of everything you’ve written and expressed that the insult is unbearable. Under the circumstances, I can only apologize for giving offense. Sorry.
One last note: I indeed have all the time in the world to write and answer posts. I am retired. I don’t know that this is somehow germane to the discussion, but it’s certainly unarguable.
I appreciate, therefore, you having taken the time from your busy life to respond to my comments.
With continued respect,
dojero
For those who remain interested in Christine Lagarde’s new rule at the IMF, I think this latest report is instructive: http://www.bbc.co.uk/news/business-14133548.
As expected, Lagarde is now sponsoring an austerity budget for Italy. Italians too should pay for the excesses of the lending system and the sins of the banks. While Moyara was convinced that the Greeks should suffer because of their past profligacy, those claims can no longer be used to disguise the outright protection of lenders over all other victims of the economic collapse. Italians, after all, have been huge savers.
We’ve heard before from free market capitalists that the social democracy model of Western Europe cannot be sustained. But that’s only because free market capitalists can’t be as rich under these systems. Christine Lagarde represents those interests and her leadership of the IMF promises no real change (as opposed to lip service).
So long as the original article is still showing up on WIP, it seems to me appropriate to continue to add to the damning evidence about Lagarde. Today, the French courts affirmed the prosecutor’s recommendation to pursue an investigation of her handling of the Bernard Tapie case. For those interested, see this link:
http://www.bloomberg.com/news/2011-08-04/imf-s-lagarde-faces-probe-into-dispute.html