Ms Lagarde must keep her charm
IMF chief Christine Lagarde recently warned of the risk of contamination if Greece quits the euro. She pointed out that for Europe, the cost of abandoning Greece would be much greater than supporting the troubled country. Why, then, did she say shortly thereafter in an interview that she had more sympathy for poor African children than Greeks? She also criticized Greek citizens that “were trying to escape tax.” And she added that Greece needed to make more of an effort to solve its economic problems.
Unfortunately, these were very naive comments on very serious problems. Ms. Lagarde’s background, qualifications and performance as finance minister of a leading country in Europe proved her capacity for her new job. There were no objections from the United States for the nomination of a European once more as the new chief of the IMF. (There had been some rumors that the reason for the U.S. attitude might be that the nomination of Ms. Lagarde was very suitable for short-term American interests; if the new administration was not successful in helping end the worldwide recession in a reasonable amount of time, the responsible person at the top of the IMF would at least not be an American.)
During her nomination process, Ms. Lagarde mentioned that being a European was neither a handicap nor an asset for her in landing the crucial job. Especially in troubled Europe, people do not, of course, want her to become a handicap. In recent weeks, however, it was understood that as a seasoned politician, she must be more cautious when she speaks if she wants to be an asset.
Immediately after she became the new IMF chief, she praised China’s efforts to rebalance its economy, defining it as the world’s biggest growth engine. After a short time, she insisted that China’s currency was undervalued. Did she mean that an important portion of the fuel used by the “world’s biggest growth engine” has been the undervalued yuan? And after praising China’s efforts to rebalance its economy, shifting from exports and investment toward domestic consumption, why did she note that China’s slowing economy was a special concern?
For a simple-minded economist, all these remarks contradict each other. First of all, the contamination of Greece’s economic problems has already begun. And this is not an epidemic but a pandemic contamination, according to a recently published World Bank report which says European economic problems and the sluggish American recovery have already begun to hurt countries in other parts of the world, especially East Asian economies, whose main export markets are Europe and the U.S.
As everybody knows, the eurozone countries still appear far from reaching a compromise. They have urged Greece to stay in the euro, but at the same time, they are preparing plans for the country’s possible exit. Only Germany is seriously working on the so-called six-point plan to boost growth in Europe. It is understood that this plan includes important privatization operations and major changes in labor markets, which mean serious political challenges for all European governments. The same is true for setting up special zones in troubled countries to attract investors with lower taxes and less regulation.
It is not easy to reach a compromise on this plan and begin to implement measures without further delay. However, it is the only serious work in the eurozone. The leaders of other important countries, such as France and the United Kingdom, have insisted on a growth pact but have yet to present a feasible solution.
There is an old saying in Turkish: “Talking is silver, remaining silent is gold.” Ms. Lagarde, of course, understands that she is no longer a politician, but she is the head of one of the most important international institutions that people in Europe are waiting on for help.
One last note: Everybody has sympathy for poor African children. However, for a seasoned professional, it is not rational to compare sympathies. And solving the Greek problem might contribute to improving the living conditions of poor African children. However, it is sure that the collapse of the eurozone will not harm only European people but almost everybody else in the world as well, including those children.