Christine Lagarde, the President of the International Monetary Fund, due to retire from her five-year term about this time next year might well be sacked before then. In diplomatic language, she’ll decide to retire early (before the . . . end of the year. I guess). As a lawyer, living and working in America most of her life and specialising in labour and anti-trust law with little knowledge of finance or economics she should never have been appointed to be the head of the second-most powerful monetary institution in the world (second only to the US Fed, of course).
She was only appointed because President Sarkozy of France four years ago stood on his high horse — as French Presidents have always been wont to do ever since Napoleon and de Gaulle — and insisted that a French person should be appointed to replace the disgraced Frenchman, Dominique Strauss-Kahn, who had to retire because his excessive sexual activities were being dragged into the America courts, and would almost certainly go to prison (which he did subsequently).
Just as it’s customary for the head of the World Bank to be an American so the head of the IMF has always been a European. In any fair and sensible world, and in view of Strauss-Kahn’s shameful behaviour, it would have been fair and reasonable for the job being offered to a German, or a Belgian or even an Englishman, but no it had to go to a French person, and Angela Merkel gracefully yielded to Sarkozy’s wish. Why? Well . . . the French don’t get much say over important EU questions, so Germany could afford to give way over this matter.
Lagarde is highly intelligent — as one would expect — and, after her appointment, she very sensibly kept her head down for a few weeks while she tried to learn some elementary economic jargon. Nevertheless, it was embarrassing to listen to her pronouncements when she had to start saying a few things in public — always in rather grand general metaphors, never once using an economic term. Speaking to punters like us, this didn’t signify much. Speaking to her fellow political statesperson — for that is what she had become by virtue of her office — she was admitting in coded language that she was wasn’t yet attempting to be an economist. She would leave that to her professional staff.
Unfortunately, politics took precedence over economics and, as the European Central Bank found itself increasingly finessed by a cunning and recalcitrant Greece — having to bail it out repeatedly — it and the other Eurozone bigwigs turned to the IMF. The ECB had reached the end of its tether. Would the IMF help? After all, it was a very powerful financial institution designed to help countries in distress. Why not? Never mind that Greece was very much the ECB’s problem, Christine Lagarde was roped in. And she was silly enough to agree to give a loan directly to Greece. She should never have done so because the IMF was now being used as a political tool.
Note, however, that the ECB and the grey eminences of Brussels who decided to do that are now nowhere to be seen. The brutal language dished out on Monday last and consolidated on Friday evening was left to the finance ministers of the 27 Eurozone countries. That’s just the way of civil servants, of course, over the advice and, effectively, take the decisions but let the politicians take the flak!
Well, there we are. Greek didn’t pay the £1.6 million payment to the IMF last night, and now they’re in deep trouble. Tsipras and his Cabinet have called for a referendum but strictly speaking — constitutionally — the non-payment of the IMF last night — the most senior creditor of them all by international law — actually means that they’ve left the Eurozone already. It’s now ridiculous for the Greek people to vote whether they want to stay in or go out. Technically they’re out now. (Much, of course, now depends on the mood and inclination of the crowds in Athens — the like of which politicians always dread.)
The whole affair is now a total constitutional mess. I don’t think Lagarde should be blamed too much for her decision to help the Eurozone but her loyalties to France must have been pressed to the limit. Nevertheless she was silly and when all the rest of the mess is tidied up one way or the other — presumably before the end of the year — she’ll have to go. Otherwise, the IMF won’t have any self-respecting senior economists left worth speaking of.