French economy minister opposed by broad coalition
IMF acting Managing Director John Lipsky told Reuters on Monday he was confident the global lender would choose a “completely qualified” person to take over from former chief Dominique Strauss-Kahn. Unfortunately, the front-runner was very clearly Christine Lagarde.
Ms Lagarde is the French Economy Minister. Two years ago, she caused controversy in the French senate by announcing: “It’s time to roll up our shirt sleeves and get to work.” Christine set a good example by doing just this, and getting every forecast for 2010 wrong. In January 2011, she told the Guardian, “We have a determination to support [the euro], and countries such as Italy and Greece are like family.” Well, every family has its black sheep – and according to Geli Merkel they will be beaten to their senses, or die in the process.
If you’ve ever wondered why Mme Lagarde sounds as if she doesn’t know what she’s talking about, then let me reassure you: she doesn’t. She’s a lawyer who thinks financial economics work in the same way: at a nice steady pace, and in an orderly manner. Very few people outside France can understand why she’s in the job, but there you are: when others zig, France zags.
However, it could be that Lipsky knew a thing or two when he mentioned qualified candidates, because yesterday what the FT called ‘a rare example of coordination’ by the BRIC countries rubbished the idea of another European candidate. This is rare indeed, but we’ll return to that issue in a paragraph or two.
The Brics argued that the selection should be based on competence, not nationality. So it sounds like they’re onto Christine. In a joint statement, they called for “abandoning the obsolete unwritten convention that requires that the head of the IMF be necessarily from Europe.”
Following Strauss-Kahn’s unfortunate slip on the bathroom soap last week, Europe has been panicked into moving quickly to stave off any more interventions from Tim Geithner. The EU is desperate to
use anyone’s money to prop up its currency stay in charge of the multilateral lender, especially at a time when it is helping to bail out Greece, Ireland and Portugal….with, probably, Spain and Italy soon to follow. Not surprisingly, the US Fed doesn’t want what was an essentially American-funded IMF spending 100% of its time on the euro – or, perish the thought, saving it – because that would be a very clear threat to the Dollar’s reserve currency status.
With this in mind, French Budget minister Francois Baroin tried to play the fait accompli card.
“It’s a European consensus,” , he told Europe 1 radio. “The euro needs our attention. We need to have the Europeans (on board), and the Chinese support the candidacy of Christine Lagarde”.
China supports Christine Lagarde? Wuhey – game over! Well no, actually, China doesn’t: China’s Foreign Ministry said it had no comment on whether Beijing would back Lagarde. In fact, last week the head of China’s central bank, Zhou Xiaochuan, said the IMF’s leadership should reflect the growing stature of emerging economies. Perhaps he was being inscrutable by thinking of France as an emerging nation, but this seems unlikely on the whole. No, you were wrong there, Francois: China does not support the Lagarde candidacy.
On the other hand, while the emerging economies may have a growing stature, several large developing countries have not yet paid their share of the latest IMF capital increase. “The cheque’s in the post,” said Turkey. No – they didn’t really: I made that bit up. And witholding the money certainly isn’t blackmail: although we’re talking £25 billion here, this represents less than 0.5% of the IMF’s Piggy Bank.
What is this growing bunfight really about, then? I’m afraid we’re back in the land of Strauss-Kahn, and why he is obviously guilty, allegedly. Fed chief Tim Geithner is adamant that a European will not have the reins of the IMF, and he has Obama’s backing on this. Nobody in the real American Establishment wants their reserve currency status threatened. But very few people in South America, Russia or Asia want the US to retain its currency hegemony indefinitely. And nobody in the Brussels camp wants that: all other bollocks aside, the creation of the euro was a concerted attempt by the EU to become a serious trade and financial rival to the US.
The question is, did the US wind up the Brics to do this? Although for years Brazilian Foreign Secretary Celso Amorim urged the BRIC countries to coordinate their efforts towards a bigger say in World affairs, this has only rarely occurred. China being such a dominant power in its own right, it is in my view debatable whether it really belongs in the ‘Bric’ definition any more. As long ago as 2008, America was steadily reducing its trade deficit with the Brics beyond China, leaving the latter holding 93% of US foreign debt.
Last Sunday, Mexico’s Agustin Carstens announced he would also run for the job. Having been the Deputy Managing Director of the IMF in 2006, he too is well qualified. He will hope to benefit from a backlash among developing countries against Europe’s historic domination of the position. It’s also worth noting, of course, the Mexico shares a long border with America.
In recent years, U.S.-Mexican relations have become warmer and closer as the two countries worked together to combat drug trafficking and secure their shared border. On May 19, 2010, President Calderón traveled to Washington, DC, for a state visit with President Obama during which both leaders reaffirmed their commitment to working together on a wide range of bilateral issues, and went out of their way to display a warmth for each other. Even in these straitened times, the US Congress has appropriated some $1.5 billion in assistance for Mexico in this year’s Budget. Frankly, I’d be astonished if the Fed hadn’t encouraged Carstens to run.
Soon after getting into the White House, Barack Obama appointed Jeff Bleich as the new Amabassador to Australia. Australia’s Wayne Swan (effectively now Julia Gillard’s No 2, he being Treasurer of Australia) called the appointment “significant”, and for once, it wasn’t just waffle: Bleich has been a close personal friend of the Obamas for the last twenty years. Yesterday Wayne Swan released this statement:
“For too long, the IMF’s legitimacy has been undermined by a convention to appoint its senior management on the basis of their nationality”.
He too is implacably opposed to a European MD at the IMF. I would find it highly unusual if such a firm statement had not been discussed with Swan’s opposite number Tim Geithner before release.
Now this Bric and close US ally coordinated rejection of the idea of a European candidate could be written off as simply a sense of historical injustice, given the growing importance of all these developing economies. But the logic of that falls down on Page One: the fact is that over 90% of IMF lending operations are now focused on EU members – so what would Agustin Carstens, for instance, bring to that party?
People will continue to call me potty, but to disregard this as a backcloth to the Strauss-Kahn incident at the Sofitel (and his subsequent humiliation at the hands of the NYPD and initial refusal of bail) seems to me just as silly as being firmly convinced that he is innocent, and the maid was really Tim in drag….DSK isn’t choosey, I’m told. With new DNA evidence linking the former IMF man’s sperm to the maid’s clothing, it isn’t looking good for Strauss-Kahn. All I’m saying is that no evidence can rule out the possibility of a set-up – given the very high stakes at this global influence table.