Life & Culture

The French have it again...


Normally the goings-on at the International Monetary Fund struggle to find space in the business sections, let alone the front pages, of our national newspapers.

But an odd confluence of events - the priapic behaviour of former managing director Dominique Strauss-Kahn, the on-going crisis in the euro zone and the struggle over who will succeed DSK (as he is known) - at the Fund have moved it to centre stage.

For the moment the job of steering the Washington-based institution through the troubles has fallen on the shoulders of senior deputy managing director John Lipsky, the former chief economist at blue blooded bankers JP Morgan Chase, who had already announced his retirement from the Fund in August.

Lipsky, a respected technician, who spent some time in London at Salomon Brothers in the 1990s, has been largely responsible for steering the organisation through the aftermath of the 2007-09 financial crisis during which it has been pivotal to securing the global stability.

Currently, Lipsky (who hails from an Iowa Jewish family) is deeply embroiled in putting together a second rescue package for Greece, as it has become clear that the first deal – done a year ago – will not be enough in of itself to prevent Athens having to re-organise its debt. That is something euro zone members are anxious to avoid for the time being, for fear of sparking a domino effect with other weaker economies – including Ireland and Portugal – demanding some form of debt relief.

There are only there credible names

As Prime Minister and Chancellor, Gordon Brown liked to tell people that if he had enough of British politics the possibility of running the IMF was always open to him. For most of Brown's decade as Chancellor he headed the Fund's critical policy making committee and played a key role in organising debt relief for Africa and the millennium development goals.

But his effort to succeed Strauss-Kahn was dead in the water before it began. His main problem has been the refusal of the British government, one of the bigger shareholders in the Fund, to put his name forward. This is largely because the Chancellor George Osborne feels he was slighted by Brown when the Tories were in opposition. Brown's refusal to acknowledge Osborne meant that the support of the Coalition was always likely to go elsewhere – even though it is highly unusual not to back a national candidate if there is one.

Brown has been required to look elsewhere for support, including friends in the media and Africa. He also won the endorsement of (Sir) James Wolfensohn, the Australian-born former president of the World Bank who worked alongside Brown on Africa's debt problems.

If the bookmakers are right the job is set to go to the current French finance minister, Christine Lagarde, who has won the support of the EU and has been publicly endorsed by both Osborne and the former Labour Chancellor Alistair Darling.

Even though the Fund was largely created by a Brit, the economist John Maynard Keynes at Bretton Woods in 1944, the job of managing director has never gone to anyone from the UK.

Indeed, it has almost become a French fiefdom with managing directors from France holding the job for nearly half its history.

The extraordinary thing is that it had been intended there would be a major change when DSK stepped down. Under his leadership the Fund's shareholdings were reorganised so as to give a bigger say to the emerging markets. DSK's departure offered the perfect opportunity for a candidate drawn from this group of countries.

Only three credible names have emerged: the larger than life governor of Mexico's central bank Agustin Carstens; former South African central bank governor Trevor Manuel and the governor of the Bank of Israel Stanley Fischer.

There is little doubt among the experts that Fischer would be an excellent choice. The Zimbabwean born former deputy managing director of the Fund has all the expertise required and is seen as having steered Israel towards an economic renaissance. But it is hard to see the Arab-Muslim bloc at the IMF throwing its support behind him.

So all the indications are that Lagarde - despite the fact that she faces judicial charges in France - will get the job. This is ironic in that she is probably the least qualified candidate in terms of her economic background.

Moreover, as a finance minister from the euro zone she will be in charge a time when the IMF's focus is on the European periphery, so she could well face a conflict of interest between what is best for Paris and Frankfurt (home of the European Central Bank) and the correct course of action.

Yet by all accounts Lagarde is cruising to victory with the 32 per cent of the votes held by the EU behind her. So far the Americans, with the biggest shareholding of 16.7 per cent, have yet to show their hand. But there is no reason to believe that Washington will refuse to climb on the bandwagon.

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