Saturday 18 November 2017

Jeremy Warner: Lagarde’s warning all very well but she offers no solutions

CHRISTINE Lagarde's blood-curdling warning of a 1930s style depression is all very well as far as it goes, but she fails to provide anything in the way of solutions. After a brief interlude in which the multilateral response to the initial banking crisis seemed to be working, it is now manifestly failing.

Presumably, Ms Lagarde's warning is meant to galvanise nations into coughing up more money for the International Fund to fight the crisis. "There is no economy in the world, whether low income countries, emerging markets, middle income countries, or super advanced economies that will be immune to the crisis that we see not only unfolding but escalating", she said. You can almost hear the subtext: open your wallets and cough up the money or you are all doomed.

Unfortunately, this is no kind of solution either. The fact of the matter is that Ms Lagarde was always the wrong choice as managing director of the IMF, if only because she is not impartial. She's a European cuckoo in the nest, and therefore as incapable of seeing what needs to be done as the rest of the eurozone policy elite. Indeed, I've yet to see any evidence that she properly comprehends the economics of the eurozone sovereign debt crisis. To Ms Lagarde, saving the euro and saving the world economy are one and the same thing. They are not.

The eurozone crisis can only be resolved by Europe itself. Further handouts from the IMF may provide a little temporary relief, but it won't solve the underlying problem. Until the eurozone accepts fully fledged debt mutualisation, this is not a crisis which is going away.

Again presumably, the ludicrous plan announced by Eurozone leaders last week to lend an additional €200bn to the IMF so that the IMF could in turn essentially lend it back to the eurozone, was partly her idea. If so, it has already failed. The UK has announced it won't cough up its €30bn share, while the Bundesbank says it cannot provide bi-lateral loans unless other, non euro, central banks do so as well. Many of them have already said they won't.

It is in any case outrageous for the Bundesbank to think of this as a global problem which should therefore require global contributions.

The eurozone is collectively the richest economic region in the world. That it cannot sort out its own affairs is pathetic and almost wilful, while to expect poorer nations to contribute to crisis resolution on the basis that if the eurozone goes down, then all will suffer together, demonstrates an astonishing level of arrogance.

Still, Ms Lagarde is right about one thing, platitudinous though it might be – here comes the 1930s all over again

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