“IMF warns France urgent need for reform” – Le chien qui ne parle pas!

Guest post by Martin Bralsford:

This article (£) in the Financial Times of 6^th November 2012 was unusual in two respects:

-The IMF Annual Report on France was critical of the management of their economy

-It did not mention the views of the Managing Director of the IMF, Christine Lagarde.

It is so unusual these days not to read of Madame Lagarde’s views on all the Euro economies in which the IMF has taken such a recent interest. Her fingerprints are all over every IMF statement and her picture in every photo-call. Yet, along with that of Germany, the French economy is one of the pillars of those EU countries which share the Euro as a common currency.  One wonders whether the IMF’s MD has been taken over by international political and diplomacy considerations rather than the organisation’s original brief, to focus on international monetary cooperation and balance of payments problems.

The IMF was formed in December 1945, becoming operational in March 1947, with France being the first country to borrow from it. Until 1971, it monitored the fixed exchange rate regime based upon the US Dollar’s peg to gold.  Since then it has been a leader in international monetary policy, focussing particularly on arrangements between currency blocs. So why is it so interested in what goes on within one currency bloc – the Euro? Taken as a whole, the economies within the Euro have no aggregate balance of payments problems with other major economies and the Euro is not weak. The financial imbalances are intra-Euro.

Perhaps the leadership if the IMF gives us a clue – the role of Managing Director is a very powerful one within the organisation.  Here is the roll call:

Christine Lagarde	July 2011 to-date	French
Dominique Strauss Kahn	Nov 2007-May 2011	French
Rodrigo de Rato	June 2004-Oct 2007	Spanish
Horst Kohler	May 2000-Mar 2004	German
Michael Camdessus	Jan 1987-Feb 2000	French
Jacques de Larosiere	June 1978-Jan 1987	French
H Johannes Witteveen	Sep 1973-June 1978	Dutch
Pierre-Paul Schweitzer	Sep 1963-Aug 1973	French
Per Jacobsson	Nov 1956-May 1963	Swedish
Ivar Rooth	Aug 1951-Oct 1956	Swedish
Camille Gutt	May 1946-May 1951	Belgian

Noticed anything? All from Europe and all from what are now Eurozone countries, except for 1951-63, (14 out of 66 years); French nationals have been MD for 38 out of 66 years. If one was looking for diversity here in geographic terms, it is a poor show.

Maybe European members should let go of their stranglehold on this appointment, after all, the management of their domestic monetary affairs leaves much to be desired.  And maybe the job holder should be a monetary economic specialist rather than primarily a politician – with a fascination for the murky art of diplomacy and one eye on the possibility of returning to a leading political role back in their home country.

If I was on the interviewing panel for Christine Lagarde’s successor, I would ask them for a succinct summary of Thirlwall’s Law and its implications for world monetary conditions in the foreseeable future. And allow answers in a language other than French.

Model answer freely translated into English: “Thirlwall’s law (named after Anthony Thirlwall) states that if long run balance of payments equilibrium on current account is a requirement, and the real exchange rate stays relatively constant, then the long run growth of a country can be approximated by the ratio of the growth of exports to the income elasticity of demand for imports (Thirlwall, 1979).”

 Perhaps the IMF needs reform and not just France!

 

 

 

 

 

 

Martin Bralsford

 

Comments

[prohyp]

Fascinating! The scope for speculation on covert agendas appears to be boundless, as indeed does the corruption which pervades the EU being overlooked.

[Martin Bralsford]

As was seen again this week, the EU is not able to produce audited accounts; what a state of affairs! Although they are said to be improving. But the culture of the EU Commission is predominantly French, where the Enarques float between Government, Ngo’s and Industry in a fairly seamless way. Whilst it works for them, it is not so much the practice in Anglo Saxon cultures, which appear to have been generally more successful. But it would be likely (with the dominance of French national MD’s) that the IMF has established traditions more along the French lines, where switching into and out of politics and the market driven sectors is not seen as unusual and dirigiste tendencies are still strong. I think all Senior Executives in supra-national organisations should have explicit watertight boundaries with their national Governments.
Is this the sort of thing that’s appropriate?

Best wishes
Martin