The Truth Talker
Dickey, Christopher, Newsweek
Byline: Christopher Dickey
As head of the International Monetary Fund, can Christine Lagarde steer Europe and America away from the brink of the next Great Depression?
Friday the 13th of January dawned grim at the International Monetary Fund in Washington, D.C. The news blowing in from across the
Atlantic, as often happens these days, brought the smell of disaster like an approaching
hurricane. The credit scores of France and eight other European countries had just been knocked down. Negotiations to bail out an
all-but-bankrupt Greece had stalled, or died--
it wasn't clear which.
At a meeting that morning, the fund's board heard that European countries were not doing the maximum necessary to stave off a financial implosion that could suck the life out of America's anemic recovery and bring Western economies again to the brink of recession, or worse.
Christine Lagarde, the former French finance minister who has been at the top of the fund since last summer, sat at the head of the oblong ring of seats in a conference room lined with portraits of past IMF managing directors, all of them men. (Her immediate predecessor, Dominique Strauss-Kahn, resigned in the midst of a sex scandal last May; his painting has yet to be put up.) Lagarde listened calmly as the 24 representatives of 187 different countries took in the bleak news, delivered by one of her key aides. Good, she thought. The staff, which has its antennae everywhere, told what the whole truth is. From her point of view, that made it a positive meeting. "Telling truth is our job," she said. There is still time to prevent a second collapse, she believes. But not much time.
Lagarde's mind was already turning to the speech she will deliver in Berlin this week, warning of dire consequences if Europe, America, China, and others do not find better ways to work together to stabilize the world economic system. Nobody at the fund wants to use the phrase "global depression"; instead, they talk about a "defining moment" or a "1930s moment." But everyone knows what they mean: massive job losses, political unrest, chaos. While Europe is the epicenter of the crisis right now, fund analysts are also looking hard at the U.S., volunteering advice on how to reduce the burden of mortgage debts on homeowners (the IMF suggests bank write-downs) and criticizing the partisan impasse in Congress that has sent repeated shocks through the world economy.
The IMF claims it can chart the way out of the crisis, but the price is high and Americans, especially, are likely to balk. Among the fund's goals: the creation of a "global firewall" of almost a trillion dollars to protect faltering finances. That would nearly triple the amount of money the IMF has on hand, but it still might not be enough, according to many economists. While Lagarde says she is generally optimistic that the Americans will support the idea, few observers think that would translate into cash contributions. A Treasury official said flatly last week that the United States has "no intention to seek additional resources for the IMF."
Lagarde, in an exclusive interview with Newsweek, is blunt about the consequences if the world continues to ignore the risks: "loss of confidence that will affect investment decisions, affect employment creation, affect volume of trades" that would hit everywhere, including the U.S. "We had better make sure that we have the buffers and we have the defenses, and that we have built reserves, so that we can resist."
Until recently, IMF managing directors were virtually anonymous. But Lagarde has become the woman of the moment, the iron lady of the global economy. She is not an economist, and she has never been elected to political office. Her greatest skills, according to those who work closely with her, are her ability to listen, to assess, to pull together a strong team, and to get the best out of a tough situation. …