Lagarde gets the top IMF job

2011 G-20 Presser

Image by IMF via Flickr

Christine Lagarde of France was chosen as the new head of the International Monetary Fund today. It was a done deal when Treasury Secretary Tim Geithner said the U.S. would endorse her over the other candidate for the job, Mexico’s central bank governor.

So the general rule of international finance prevails: Europe gets the IMF, the U.S. gets the World Bank. The developing world is put on hold.

So now that Lagarde, the soon-to-be former French finance minister, has the job. Here is one of the first things she’s going to have to deal with:

This is Athens on Tuesday, when Greek Unions called a general strike against the austerity measures being proposed to keep the country out of bankruptcy. The Greek Parliament is calling for wage cuts, tax hikes and selling public companies to the private sectors. If that doesn’t happen, foreign lenders, specifically the European Union and the IMF, won’t lend Greece the money it needs to avoid default.

As you can see, the people are not happy. It’s pretty much expected the measures will pass. And you can pretty much expect the demonstrations are going to be more violent. And even if Greece gets the money, chances are it still won’t get out of trouble.

And Greece isn’t the only western European country on the verge of collapse. Keep an eye on Portugal, Ireland, Italy and Spain when the Greek plan fails. So Lagarde is going to be extremely busy and will be under a lot of pressure to make things right. Given the situation, it’s doubtful anyone can succeed here.

(Oh, and here’s the obligatory “Lagarde is the first woman to head the IMF” line, which is kind of ironic since the previous IMF chief, Dominique Strauss-Kahn, is awaiting a rape trial in New York.)

Lagarde likely to replace DSK at IMF

French Finance Minister Christine Lagarde (L) ...

Christine Lagarde with Dominique Strauss-Kahn

There’s been speculation for a week, but it looks like Europe is rallying around French finance minister Christine Lagarde as the successor to Dominique Strauss-Kahn at the head of the International Monetary Fund:

As the International Monetary Fund prepared to accept nominations Monday to replace Dominique Strauss-Kahn at its helm, European officials rallied over the weekend around Christine Lagarde, France’s finance minister, as their top choice for the post, despite fresh warnings from leaders of emerging markets and other countries that simply handing the job to another European could undermine the fund’s legitimacy.

It’s hard to believe the Europeans would let anyone outside of Europe take over the IMF post now that DSK is gone. There’s an unwritten agreement that an American gets to lead the World Bank and a European gets the IMF. If you look at the World Bank, the past two heads have been Robert Zoellick and Paul Wolfowitz, both Bush administration veterans.

There are a number of reasons the Europeans want control of the World Bank, but the most important is they don’t want anyone outside of their continent making decisions that will have a huge bearing on dealing with the current European economic crisis. IMF policies in Africa and South America have caused a lot of pain on those continents and have also led to anti-IMF riots. And after the 1997 Asian financial crisis, in which the IMF tied loans to major structural overhauls of the banking, currency and economic systems of affected Asian countries, the Europeans definitely don’t want someone from Asia, the continent most likely to provide a new leader for the organization, taking over the post. There must be a huge fear of payback among Europeans if someone outside the continent was making decisions on whether Greece, Ireland, Italy, Spain and Portugal would survive, not to mention the general economic problems facing the continent.

In terms of selecting a European to head the IMF, it is kind of surprising that Gordon Brown, the former U.K. prime minister, isn’t being seriously considered. Just a few years ago, when the world economy was collapsing, he was being praised as the world leader who kept his head and developed a viable recovery plan while the rest of the world was running in circles. But the rest of Europe really doesn’t trust anyone who comes from the U.K. Some, in fact, blame the Anglo-U.S. economic model for the current global financial mayhem. And in the U.K., surprisingly, there is a visceral hatred of Gordon Brown, something I never quite understood when I was there. The current U.K. chancellor of the exchequer (what we would call the Treasury secretary), George Osborne, despises Brown and absolutely refuses to support his candidacy as the IMF chief. So, Brown is out.

And it’s kind of ironic that Christine Lagarde is the front runner … a French woman replacing a Frenchman accused of a sex crime.

But Europe will rally behind one candidate to make sure Europe retains the IMF leadership. And right now, the rally is behind Lagarde.