Thursday, June 2, 2011

Simon Johnson on the Lagarde IMF Candidacy

Why is France so dead set on having Christine Lagarde run the IMF? Simon Johnson has an idea:

The French want to sway decision-making at the I.M.F. in order to use money from the United States, Japan and poorer countries to conceal from their own electorate that the euro-zone structure has led all its members into fiscal jeopardy: some borrowed heavily; others let their banks lend irresponsibly and thus created a large contingent liability.

The best way to hide the true cost is to have other people’s taxpayers foot the bill, preferably with the least possible transparency. Thus, euro-zone politicians have a lot at stake, and look for Ms. Lagarde to run the I.M.F.

2 comments:

bernard said...

Funny that, when put in relation with Martin Wolf's graph yesterday. Bank of France does not have large liabilities, and French banks are rather less exposed than German banks to troubled economies. I think this idea is quite far-fetched, whatever I may think about the future of the Eurozone. I would simply expect that it has a lot to do with retaining a job that, more often than not, has been held by a French.

Arthur Goldhammer said...

Bernard, Wolf's graph showed liabilities of **central** banks in each of those countries. Johnson's claim is that French **private** banks are exposed, especially to Spanish debt, and need to be protected against defaults in the PIGS. I think this is correct. Nevertheless, I also take your point about this position traditionally being French.