There’s a remarkable piece in the FT this morning – the gist of which is that Christine Lagarde is causing every which way kind of panic and confusion within the Troika. This gets more and more interesting.
Unusually for me, I posted very early this morning (at 5.30 am, having been woken by the US at 4.10) and opined as follows:
‘….while Mario Draghi clearly knows what he’s doing, the disagreement I highlighted yesterday between the Troika members about eurobonds, ESM firepower and ECB liquidity-pumping remain as serious as ever. (And as always, at least 70% of the proposed ‘funds’ to tackle the problem are Regler-Lagarde fantasies).’
The phone-call was to tell me that Lagarde is not ‘in the loop’ as regards calling the lenders’ bluff…or at the very least, doesn’t want to be in it: perhaps ‘outside the tent’ might have been nearer to what the source was saying. But he did confirm that “the Troika is all over the place now, and the lenders are genuinely confused”. This source is financial – a heavy-hitter. You never know what the motive might be. I now think I owe the bloke an apology: I think he was right, and I think I know why.
You have to pay attention for this next bit – it’s complicated.
According to the FT, Lagarde is ‘pressing the European Central Bank to take a hit on its €40bn in Greek bond holdings’. In the middle of last week, the ECB had taken a decision to accept a bigger hit on its Greek bonds than the more hawkish private lenders. Now Lagarde wants it to take an even bigger one. This being our direct taxpayers’ money (as opposed to IMF money) the French boss of the Fund is more than happy to press the matter. Draghi, by contrast, is furious.
The problem is that Lagarde isn’t in the loop of the EU plan to flex some muscles against the markets….she too wants the lenders to take a bigger hit. What she doesn’t want is any of this to cost the IMF too much more of its money: and she sure as hell doesn’t want the Greeks to default. For while the IMF being bad-debted for the first time in its history could be seen as entirely predictable (having hired Christine as MD) the lady herself isn’t up for it: ‘not on my watch’ and all that. Hence the frantic speeches being stepped up of late about more firepower, keeping both the ESM and the EFSF, bigger contributions from other eurozone sovereigns, and so forth.
A slightly bewildered Charles Dallara said yesterday he looked to “all parties to honour the commitments made”, but the central problem remains that the IMF has chosen now – of all times – to decide that the Greek economy has got so much worse, the bondholders cannot expect to get the deal they thought they’d signed in October. This is very bureaucratic thinking and, as we know, Mme. Lagarde is a bureaucrat through and through.
The summary is this: mad Berlin/Brussels austerity policies made the Greek economy even worse, so now the IMF (which did a volte-face on this strategy the minute Lagarde joined) thinks the ECB – itself in the odd position of being both creditor and potential saviour – and Berlin should cough up more…and those who loaned Greece money should take the biggest hit of the lot. No wonder the lenders are confused.
What we’re seeing here is the obvious consequence of a European Union in which there are three camps: the French, the Germans, and the Central Bank. It has been like this for nearly eighteen months now, and it took only the addition of Christine Cerveau d’un Oiseau Lagarde to turn the whole farce into an improv play along the lines of Spike Milligan’s The Bed-Sitting Room.
I don’t know what it would take for the British Establishment to decide this is a circus in which they have no desire to be either clown or trapeze-artist. But I wish it would happen – and soon.