So, Christine Lagarde has been confirmed as the new head of the Washington-based International Monetary Fund, succeeding the disgraced Dominique Strauss-Kahn. It's hardly a radical move by the IMF – with the whole world to choose from, it's replaced one French politician with, erm, another French politician – although it does at least mean the IMF will be led by a woman for the first time in its history. Lagarde has clearly emerged as the consensus choice, but is she the right one? The problems in the eurozone, particularly in Greece, remain the IMF's biggest challenge. Will Europe's favoured candidate really be able to provide the kind of independent, objective scrutiny that Europe's current plan arguably needs?
Lagarde is clearly a formidable candidate. She's smart, well-connected, had first-hand experience of the financial crisis, and, critically, has a broad base of support. Always the first choice of Europe (the UK Government backed her right from the start, possibly because they were so desperate to stop Gordon Brown getting the nod), she's also managed to win over the big emerging economies of Brazil, Russia, India and China – despite suggestions that it was about time a non-European got the job. The fact that she did shows not just that she's a savvy political operator, it also suggests that she's promised them more of a say in how the IMF is run. And in the week MT publishes our 35 Women Under 35 list, it's nice to see a woman taking such a senior position in a sector dominated by men.
However, if Lagarde has lots to recommend her, she's by no means a unanimous choice. In her first interview after her appointment was announced, she urged the Greeks to pass the heinously unpopular austerity package it's currently debating in parliament – a clear indication of exactly what her top priority will be. But as a long-standing lieutenant of French President Nicholas Sarkozy, Lagarde is in an awkward position here. The French government is trying to push through a new scheme that will allow Greece's creditors to roll over a portion of their debt – but, as we discussed yesterday, this appears to be based on the almost certainly flawed premise that Greece will, at some point, be able to pay back all its debts.
Even if Greece passes these austerity measures today, there's no guarantee that it will prevent a default. For a start, agreeing the package and implementing it are two very different things – and the scale of the protests and rioting make it very clear how hard the latter will be. And, even if they do work, it's quite possible that Greece might still default once it has borrowed enough money and repaired its finances sufficiently to run the state on a day-to-day basis (as the BBC's Robert Peston explains in an long but excellent blog today).
In other words, what's happening in Greece could have huge implications for the entire global economy. The IMF has to be able to stand up to the eurozone's big powers if it feels the plan isn't in the best interests of the world as a whole (as opposed to the French banks). But will Lagarde be willing to do that? You can see how non-eurozone countries might be a bit sceptical...
- Image credit: Flickr/Adam Tinworth