As the United States and the IMF urged fast action on a program to help settle Greece’s problems before they became more expensive and riskier to the world economy, France — through Lagarde — argued that Europe could tend to itself, a position that consumed precious weeks resisting an IMF role in any rescue.
“We were not opposed to the IMF being involved in the diagnosis and monitoring of the program. We were very reluctant to have the IMF acting as a financing party because we would have preferred to have it [handled] within the euro zone, within the single monetary union,” Lagarde said in an interview in June 2010, reviewing the events that led to a joint IMF-European rescue of Greece and the establishment of a larger European bailout fund.
As head of the IMF, Lagarde would play an even deeper role in shaping what happens next in Europe, yet the region’s existing crisis response has been criticized recently by the IMF, U.S. Treasury Secretary Timothy F. Geithner, and a host of outside analysts.
Conditions in Europe, the fund said this week, pose perhaps the chief current risk to the world economy.
“From an intellectual standpoint, this should be one of the considerations” in Lagarde’s candidacy, said Ted Truman, a former Treasury and Federal Reserve official and analyst at the Peterson Institute for International Economics.
The Greek rescue, in particular, has unraveled, with the country facing a deeper than expected recession, and likely in need of tens of billions of dollars in additional IMF and European loans beyond the $160 billion provided under the three-year emergency program approved last year. Those negotiations will take place under the watch of the next managing director, who is to be selected by June 30.
Ireland and Portugal may need to renegotiate their existing rescue programs as well, and there is still risk that a larger euro zone country such as Spain may also need help.
It is difficult to separate Lagarde’s approach to Europe’s crisis last year from the policies set by French President Nicolas Sarkozy, which she would have been obliged as a cabinet member to represent. But a review of her involvement shows a leader who was at once at odds with the IMF and others on key points, yet who, as critical deadlines approached, also helped cement an agreement that avoided what in late May 2010 was developing into a potentially damaging market run on the bonds of European nations.
There’s been little sense that Europe’s renewed crisis has slowed Lagarde’s momentum to replace Dominique Strauss-Kahn, and little sense from her of what she might do differently.
Her only competition for the IMF job, Mexican central bank governor Agustin Carstens, has raised the issue without criticizing her by name, saying in public presentations that European leaders turned a blind eye as Greece’s obvious problems evolved into a crisis. In his presentation to the IMF board this week, he said in cases where IMF lending “would only overburden the member,” the fund should help the country restructure what it owes to private lenders. That is considered by many analysts to be the situation in Greece, but France and other European countries have sought to avoid a restructuring of their debt.
Debt restructuring in Mexico was delayed for years in the 1980s, when Carstens was a rising young economist, out of concern for the losses U.S. banks might incur in their holdings of Mexican government bonds — much as a Greek restructuring is being discouraged because of the possible effect on Greek, German and French banks.
European nations in particular have aligned behind Lagarde so solidly her election to the IMF job seems almost foregone. There has been no sign of united opposition taking root against her in other countries.
The U.S. has not indicated its choice.
Lagarde’s chief spokesman, Bruno Silvestre, did not return a call for comment. But in a recent interview he told the Associated Press that Greece’s renewed problems would not affect Lagarde’s job prospects.
“She’s ridden the wave; she knows how to handle a crisis,” Silvestre told the wire service.