Yesterday, Christine Lagarde, France's finance minister, officially announced her interest in becoming the next chief of the International Monetary Fund, the world's most powerful emergency rescue service for stricken economies.
She is likely to get the job, because she is Europe's leading candidate.
According to tradition, a European runs the fund, while an American runs its sister institution, the World Bank. It's an arrangement that Europe and the U.S. have maintained, despite the growing power and clout of the emerging economies such as China and Brazil.
Lagarde has a lot going for her. She's very smart. She's personable — a key factor for a job involving high-stakes negotiations, often to get governments to pursue highly unpopular but economically prudent policies. It's also important that she's a woman, especially given that Dominique Strauss-Kahn, the outgoing IMF chief, left after sexual assault allegations, and given that the IMF has acquired a reputation for being lax about sexual harassment.
But some very influential people in the economics world argue that she’s the wrong person for the job.
One is Simon Johnson, an MIT professor and former IMF chief economist.
In a NY Times blog post, Johnson argues that Lagarde’s status as an ardent defender of the eurozone means that she’s fatally flawed, unable to provide objective leadership over the IMF’s biggest current challenge: Europe’s sovereign debt crisis.
Johnson regards the eurozone as a failed experiment.
“The founding assumption for the euro zone in 1999… is that its countries would converge in terms of productivity levels — to put it starkly, that Greece would become very much like Germany.”
Of course, that didn’t happen. Germany got stronger, while Greece and other peripheral states have become mired in debt and stagnation. So now, Johnson argues, Europe faces a choice: its stronger states either need to transfer more of their wealth to the “poorer, less dynamic” nations “where people do not like to pay taxes,” or these lesser countries will have to be “eased out” of the eurozone. Instead, Europe has been kicking the ball down the field to avoid confronting this ugly choice.
“If Ms. Lagarde becomes head of the I.M.F., she is most likely to continue to throw loans at the euro zone problems. If there are preventive programs even for Spain, Italy or Belgium, the I.M.F. will need to tap its shareholders for at least another $1 trillion in credit lines,” Johnson writes.
“Ms. Lagarde personifies the strategy of gambling for euro zone resurrection with other people’s money. Why would taxpayers in the United States and elsewhere want to support her?”
Likewise, Martin Wolf, one of the Financial Times’ most influential columnists, agrees that it would be difficult for a euro-optimist like Lagarde to provide the appropriate leadership:
“It is in the Europeans’ interest to receive unbiased and independent advice from the IMF. That, Mr. Strauss-Kahn could not give. Madame Lagarde will not be independent either.”
While praising Lagarde’s many strong qualities, Wolf also points out that “her economics are limited,” so she would need “to rely on the advice of the people around her.”
Most importantly, Wolf argues that the with the changing world order, the process should be transparent, merit-based, and open to qualified candidates from elsewhere in the world. He’s skeptical that Europe will heed his advice:
“Regimes that do not bow to the winds of change get blown away. The Europeans need to recognize that truth in time. They will not do so. But it will prove a big mistake.”