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The Lagarde Debacle

The IMF After Strauss-Kahn

by PHILIPPE MARLI?RE

London.

In France, Dominique Strauss-Kahn epitomised to the point of self-parody the “gauche caviar” (champagne socialism): the Marrakech riad, the libertine lifestyle and a very, very wealthy wife. If Christine Lagarde succeeds him as director of the International Monetary Fund (IMF), there will no doubt be a radical change of style within the institution. To start with, the media will no longer have to cover extra-marital affairs with subordinates or worse. Strauss-Kahn’s flamboyant leadership will be replaced with a more down-to-earth one.

Lagarde has the discreet charm of the French bourgeoisie. Her uptight and sometimes demure manners will offer a stark contrast with Strauss-Kahn’s bling and brash personality. The French finance minister should be a great hit in Washington: she speaks an American-accented English, studied in the US and worked as congressional assistant. The financial media have adored her for a while: in 2009, the Financial Times ranked her the best finance minister of the eurozone, and Forbes magazine named her the 17th most powerful woman in the world. But if her record as finance minister is anything to go by, she should definitely not be given the job.

Elusively Gallic, but emphatically orthodox when it comes to economic choices, her appointment would signal a return to textbook monetarist policies. The 55-year-old former corporate lawyer has no background in economics. After graduating in law, she became the first female chairman of the law firm Baker & McKenzie in 1999. She was also the first female minister in charge of economic policy in France. But should speaking fluent English, being a woman and European qualify Lagarde as next IMF director?

It is, indeed, astonishing that one the major architects of the punitive and ineffective bailouts in Greece, Ireland and Portugal, should now found herself at the helm of the IMF. The European Union has proved incapable of designing a proper anti-crisis policy for the eurozone. Both the US administration and the IMF had to intervene to prompt a Franco-German led eurozone to take steps to prevent an impending catastrophe. In May 2010, the EU eventually launched the ?700bn Financial Stability Mechanism. Not only did the funds prove insufficient to reach their stabilising objective, but a lack of leadership was also blatantly exposed. While Germany urged more austerity measures on Greece, Ireland and Portugal, Christine Lagarde warned Greece that it was at risk of default if “it didn’t do more to bring its public finances into order.” No doubt that the quasi-bankrupt Greek government will have found it helpful.

First, Lagarde sided with the European Central Bank in opposing any form of restructuring of the Greek debt. Then, she softened her stance and agreed to a new bailout along the same austerity lines that made the previous bailout fail. In true neoliberal fashion, the candidate to the IMF directorship supported the idea that Greece should privatise state assets, to be sold to Chinese buyers. These failed policies have inflicted nothing but unnecessary suffering on European peoples, and have largely contributed to boosting a resurgent far right across Europe. Lagarde was one of their main instigators.

As finance minister, Lagarde has mostly been the executor of Nicolas Sarkozy’s policies. It is hard to find one single decision, debate or policy that she has initiated or imposed her mark on. At home, her voice has hardly been heard in economic debates, let alone in political debates in general.
Lagarde’s choice as IMF director seems all the more inappropriate insofar as she could soon be placed under investigation for having allegedly misused her powers to help Bernard Tapie ? a former business tycoon and friend of Sarkozy ? in a business dispute with the French state (whose interests Lagarde was supposed to represent). In an out-of-court arbitration ordered by Lagarde, the state was made to pay ?403m to Tapie. Socialist MPs have challenged the probity of her decision, arguing that to remove the case from the courts was largely to Tapie’s benefit. This, they consider, “had the aim of favouring personal interests to the detriment of public interest.”

Last week, Jean-Louis Nadal, the public prosecutor of the court of cassation (France’s highest court of appeal), has ensured that details of the role played by Christine Lagarde in the Tapie dossier be made public. In an 18-page document, Nadal backed the Socialist MPs’ allegations and stated that “Lagarde had indeed acted in a way to defeat the law … and to help Tapie gain a favourable decision, against an earlier judgment of the court of cassation [which had been favourable to the state].” After the Strauss-Kahn fiasco, the IMF might be embarking on a Lagarde debacle.

Philippe Marli?re is a Professor of French and European politics at University College, London (UK). He is a regular contributor to The Guardian, Le Monde and Le Monde Diplomatique. He can be reached at p.marliere@ucl.ac.uk.