The fraught politics facing Lagarde

By Felix Salmon
May 24, 2011
Patrick Wintour's interview with Vince Cable, a UK cabinet minister who, perfectly sensibly, says that Greece is going to have to restructure its debts.

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To get an idea of the job facing the new head of the IMF, check out Patrick Wintour’s interview with Vince Cable, a UK cabinet minister who, perfectly sensibly, says that Greece is going to have to restructure its debts. Cable puts a positive spin on the idea: a “soft restructuring”, he says, with Greece staying in the euro zone, could lead to a closer political union.

Then, read the story of what happens when you so much as suggest such a thing to Jean-Claude Trichet, eurocrat-in-chief. Even if you’re from Luxembourg:

Jean-Claude Trichet, ECB president, walked out of a meeting hosted by Jean-Claude Juncker, Luxembourg’s prime minister. According to people familiar with events at the meeting, Mr Trichet was angry at talk of a so-called “soft” restructuring that could involve an extension of Greek debt maturities.

I can see why Trichet is so opposed to such a policy. Central banks, by their nature, hate restructuring assets: granting debt forgiveness is fiscal policy, not monetary policy. But the ECB holds a lot of Greek debt, and it’s almost impossible to see how it could fob that debt off onto the European Financial Stability Facility or any other body in advance of any restructuring.

In any event, the politics here are extremely delicate — note that Cable’s view is still just Cable’s view, rather than being the official view of the UK government — and the managing director of the IMF is the key broker who can forge some kind of consensus on this fraught subject both within Europe and more globally.

That’s why Pierre Briançon is wrong when he complains of Christine Lagarde that she isn’t qualified for the job:

Lagarde, who has no academic training in economics or finance, doesn’t even seem to have a strong set of beliefs.

Right now, a strong set of beliefs is something we don’t want in an IMF managing director. The job involves delicate negotiations with very large egos: it requires toughness, to be sure, but certainly not ideology. In that respect, the fact that it’s impossible to place Lagarde into an ideological hole is a big point in her favor — as is the fact that she seems to get on very well with the likes of Angela Merkel as well as her compatriot Jean-Claude Trichet.

Besides, “no academic training in economics or finance” doesn’t sound so bad to me, given the alternative.

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