Monday, July 9, 2007

Stiglitz on the IMF

With all the talk about DSK heading the IMF, it is odd that, to my knowledge, the man himself has as yet had nothing to say. I've already given reasons why I think he should take the job. Now Joseph Stiglitz, reflecting on the Asian financial crisis on its tenth anniversary, offers another: important lessons of that collapse have not been learned. The IMF needs a leader with a firm grasp of clear and present dangers in the global economy. Listen to Stiglitz:

The second lesson is that in a highly integrated world, there is a need for a credible international financial institution to design the rules of the road in ways that enhance global stability and promote economic growth in developing countries. With the IMF so dominated by the US (it is the only country with a veto) and Europe (which, by custom, appoints its head), the Fund was long seen as representing the interests of international creditors. Its failures in the 1997 crisis further undermined its credibility, and its failure to do anything about the massive global financial imbalances that represent the main threat to global financial stability today, have underscored its limitations.

Here is a challenge to which Strauss-Kahn could rise, demonstrating his stature and ability to lead. Sarkozy has opened a path for him. Whether or not Sarko's intention was to sow further discord among Socialists and decapitate the party, the fact remains that he has propelled DSK into a formidable position. Although there is resistance from certain quarters, the signs are on the whole favorable for DSK's candidacy, but he's going to have to seize the opportunity soon.

Of course joining the IMF would leave DSK vulnerable to criticism from the anti-globalization left. He will be obliged to embrace the beast firmly and demonstrate that an avowed "social democrat" can be an effective lion-tamer. If he can do that, he will advance himself toward the presidency more effectively than by any other means available to him. If he can't, he will have demonstrated that social democracy is not a winning formula for the PS. Either outcome would be preferable to several years of inconclusive dithering. Action is the order of the day, and DSK should break his silence and act.

Show Me the Numbers

Pres. Sarkozy today sent Martin Hirsch, who bears the sonorous if opaque title of High Commissioner for Active Solidarities against Poverty, a letter in which he said that 7 million people in France fall below the poverty line and that he wants to reduce that figure by one-third. "It is by setting ourselves quantitative goals and the obligation to meet them that we will mobilize ourselves sufficiently to make a real dent in poverty." Love him or loathe him, you've got to admit that's a bold promise, since he's talking numbers and leaves his flank completely exposed in the next election if he doesn't deliver.

Sarko the Irresistible

The Elysée announced today that for his first official journey outside Europe, Pres. Sarkozy will travel to North Africa and will be "accompanied" by Jean Daniel, the editor of Le Nouvel Obs. How very interesting. Throughout the campaign, journalists of the left worried about Sarko's close friendships with a variety of media moguls. Sober heads counseled patience. In all the media there were vigilant journalists, many with left-wing sympathies, who would remain ever watchful for signs of undue interference.

But now the doyen of the opposition press, the venerable Jean Daniel (Jean Daniel Bensaïd and a child of the Maghreb), not only agrees to "accompany" the president on an official journey but allows his participation to be announced by the Elysée. To be sure, Daniel is 87 and perhaps not the power he once was was. But shouldn't the journalists of Le Nouvel Obs be as concerned by this decision as the journalists of Le Monde apparently are by Alain Minc's role at their newspaper? Isn't Le Nouvel Obs part of the same press group? Will Jean Daniel explain why he chose to accept this role, which may not be called a "presidential mission" but has all the earmarks of one? Is this a part that an "independent press" ought to be playing? Even allowing for Jean Daniel's long-standing interest in the Maghreb, one wants to question his judgment. If he were simply covering the trip as a journalist, his participation wouldn't be announced by David Martinon, Sarko's spokesman. The appearance of co-optation is troubling.

Meanwhile, we learn that cadres like to read Le Monde and Le Nouvel Obs. The latter ranks first among "generalist weeklies" on the reading lists of cadres, although it does come third to Télérama and Equipe Magazine, which serve niche markets. So chances are good that most of France's managers, glued to the tube watching sports matches, won't even notice that Sarko has picked off another homme de gauche and enticed him into the presidential orbit.

DSK, IMF: Times and Post Take Note

The Times has finally taken notice of Sarkozy's proposal that DSK should become the next head of the IMF. True, the story is buried at the bottom of page A4, and François Hollande's reaction is mingled with his reaction to the minimum sentence law. The Washington Post carries a more informative story from Reuters reporting on skepticism in other European capitals. (For previous comments on this subject, see here , here, and here.)

Money Matters

Back in the day when Republicans were conservatives tout court, without modifiers such as "neo" or "social," the worst insult they could hurl at Democrats was that the measures they advocated would "debauch the currency." It seems that the finance ministers of Euroland fear in Sarkozy a similar threat of debauchery, so the French president will hasten to Brussels for the third time since his election to persuade them of his probity and sobriety (articles here, here, and here).

He won't have an easy job of it. His statements on the currency sound as though they might have come from the Delphic oracle: "We [Europeans] can't continue to be the only ones to have a currency that isn't serving the ends of growth and employment." Sarko has repeated variations on this basic theme any number of times, often coupled with dark allusions to manipulations of the dollar, the yuan, the yen, and even the pound sterling. Europe is being had by a bunch of coin-shaving riverboat gamblers, he seems to be saying, and the bankers of Euroland aren't even aware that their pockets are being picked.

Finance ministers and bankers consult their own haruspices, however, and are prepared to grill Sarkozy in order to learn exactly how he interprets his oracle. Peer Steinbrück, the German minister of finance, warns that "if France were to abandon the medium-term objectives that we've all agreed upon, there may be a problem." Portuguese finance minister Dos Santos says that "if a country doesn't respect its commitments, that raises not a legal problem but a political one."*

Behind these ominous pronouncements lies the utter ambiguity of Sarkozy's allusions to the currency, coupled with the undeniable implications of his government's declared intentions. Under the Stability and Growth Pact, Eurozone member countries agree to keep deficits under 3 percent of GDP and a debt-to-GDP ratio under 60 percent. France is already at 65 percent, and Sarko has granted himself until 2012 to return to budget equilibrium rather than 2010 as France had previously agreed. Meanwhile, new spending measures already announced promise to add more than 12 billion euros to the deficit.

So Sarkozy is embarked on a course similar to that of Bush, as if he accepted Dick Cheney's now famous dictum, "Deficits don't matter." Is that what he means by "a currency serving the ends of growth and employment?" He forgets the third element of the trinity, price stability, without which growth measured in nominal terms may be illusory and higher employment may be paid for in terms of falling real wages and hence a decline in standard of living. He seems also to be aiming at the trade implications of the euro's strength against the dollar, but exactly what he would like the ECB to do about this remains unspecified. In any case, these are theoretical worries, and Sarko has said that he is "not an intellectual" and doesn't give a fig about theoretical concerns; he is a man of action, determined to get things done and the economy moving. Exactly what he will say to the finance ministers and central bankers to allay their worry that he is a debaucher of the currency remains to be seen. He is taking his own lawyer-turned-finance-minister Christine Lagarde with him to help make the case, but her views on the economy are even more mysterious than Sarkozy's.

I expect Sarko to extol, as is his wont, activity over theory. The "credible commitment" of the European Central Bank to price stability is not his concern. A common misinterpretation of Sarkozy is to take him for a laissez-faire liberal. In fact he is a laissez-moi faire liberal, which is quite the opposite. His will not be a "night watchman state." It will rather be the state as rugby coach, on the model of Bernard Laporte, who is soon to join the government: fort en gueule, constantly prodding, exhorting, and pushing players to the limit. How the bankers in their pin-striped suits will react to the energetic rugby man in his colorful shorts and permanent lather should be interesting to watch.

* (LATE ADDENDUM): But note that German vice-minister of finance Thomas Mirow says that DSK is an "excellent choice."