Sean O'Grady: Not a job for Europe's rock star

Friday 20 May 2011 00:00

The IMF used to be an organisation in which the rich economies of the West bailed out the distressed economies of the emerging world. Now the position is precisely reversed.

With the exception of Germany, and, maybe, Japan, it is the West that is virtually bankrupt. And it is now the fast-growing economies of Asia and Latin America that are bankrolling the West. Even the United States, which still calls so many of the shots at the IMF, is effectively funded by China. And yet, China has fewer votes at the IMF than the UK.

So there is an argument of equity for giving the top IMF job, which has been hastily vacated by Dominique Strauss-Kahn, to a non-Westerner. But there is also a very good practical reason too, and it is this: they would be that crucial bit more likely to offer unsentimental, unflinching advice on the one course of action for these distressed eurozone economies that is always ruled out, and that is to get the hell out of the eurozone.

I just think it is very hard to imagine Christine Lagarde being able to say to Greece, for example: "Look, you do not need another bailout, and whether or not you default on your debt; the best course of action for you in the long term is an orderly withdrawal from the single currency."

Impressive as she is, the French finance minister is, I think, like the other European candidates, too steeped in the European Union establishment and too much part of the French elite to be able to abandon the euro as an article of faith.

For a clear-headed, dispassionate Singaporean, let us say, the decision on recommending that Greece leaves the euro would be a much less traumatic affair.

And even if that were not the case, we might still be better off with someone for whom the idea that they are a Sarko crony could never stray into our minds. So while it is true that Ms Lagarde knows the eurozone's funny little ways, she might also be more blind to its failings.

Political "clout" – which she does possess – is only useful if it is wielded in the right direction.

Besides, the IMF's clout is more financial than political, and its methods as much intellectual as diplomatic. It must have a head determined to get to the root of Europe's problems, and not just throw money at bailout after bailout. And, let there be no doubt, the fundamental cause for the successive sovereign debt crises in most of the eurozone countries is competitiveness, or their lack of it, and their inability to regain it under the current system.

The "one size fits all" interest rate regime has failed. Right now the European Central Bank is planning rate hikes for fear of inflation. They may be able to cope with that in Germany, but they will push Spain's broken property market and busted banks even further into the abyss, triggering another crisis.

A distressed economy needs the option of devaluing its own currency (as the UK has) to get exports going and get back to normal.

Some time in the next few years a politician in Portugal, Ireland or Greece, maybe an unpleasantly nationalistic and rabble-rousing one, will come along and call for an end to the misery, the endless "austerity", the stagnation and the emigration, and call on their country to get out of the euro.

The next head of the IMF would be wise to pre-empt that. For all her status as a "financial rock star", Ms Lagarde is not the woman for that job.

I can't pronounce his name, but I'd rather Tharman Shanmugaratnam (the aforementioned Singaporean) any day.


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