Lagarde Uses IMF Role to Prod Europeans to End Debt Haggling
A week after becoming the only woman in history to take charge at the International Monetary Fund, Christine Lagarde notched another milestone: she nominated Zhu Min, a former deputy governor of the People’s Bank of China, as a deputy. Zhu is the first Chinese deputy managing director since the fund’s founding in 1945.
Zhu’s nomination is one way in which Lagarde, who has worked and lived in France and the U.S. throughout her career, is extending her influence beyond the West, Bloomberg Markets magazine reports in its October special issue on the 50 Most Influential people in global finance. Her supporters say her background is a plus.
“A European head of the IMF may be able to let the Europeans accept that it is time for the institution to take distance from Europe,” says Jean Pisani-Ferry, an economist at the Bruegel research group in Brussels.
Lagarde, who took over on July 5, has a history of working to unify disparate interests. During her first weeks as managing director, with European governments haggling over another Greek bailout -- this one 159 billion euros ($222 billion) -- she made it clear that they needed to act.
Things Have to Happen
In a July 26 address at the Council on Foreign Relations in New York, she pressed European nations to implement a Greek rescue package they had formed the previous week. And she urged Greece to accept austerity measures in exchange for the bailout.
“Things now have to happen and have to be delivered,” she told the group.
On Aug. 27, she told a gathering of central bankers in Jackson Hole, Wyoming, that more action was need to save the world economy. This time, Germany, Spain and the European Union rebuffed her call for an “urgent” recapitalization of Europe’s banks.
Lagarde, 55, has navigated a previous wave of turmoil in Europe. She was France’s finance minister in May 2010 when dread about the stability of Greece and other nations spread across the globe. At a European ministerial meeting in Brussels, she juggled phone calls from U.S. Treasury Secretary Timothy F. Geithner and European government officials. By the early hours of May 10, she had forged a consensus with European Union finance ministers to back a $1 trillion plan to rescue troubled euro-zone economies.
“Wherever she has worked, she has had a strong voice and impact,” World Bank President Robert Zoellick says.
The new chief’s negotiating skills will help her steer the 187-nation IMF through the escalating euro-debt emergency, a slow global recovery, rising inflation and high unemployment, says Alessandro Leipold, a former IMF acting director.
“She’s very able, and one of the skills she brings with her is certainly political acumen,” Leipold says.
Lagarde took over after countryman Dominique Strauss-Kahn resigned to defend himself against charges of sexually assaulting a hotel maid. On Aug. 23, New York State Supreme Court Justice Michael Obus dismissed the indictment against Strauss-Kahn.
Lagarde has her own legal headaches. On Aug. 4, a French court ordered a formal investigation into whether she’d abused her finance minister position by allowing a 385 million euro ($547 million) settlement in 2008 to Bernard Tapie, an investor and former Socialist minister.
Tapie, who endorsed President Nicolas Sarkozy, got the award after accusing Credit Lyonnais SA of bilking him in 1993 when it oversaw the sale of his stake in sporting-goods maker Adidas AG. Tapie declared personal bankruptcy in 1994.
‘No Way Incompatible’
Yves Repiquet, Lagarde’s lawyer, says the judicial inquiry won’t affect her IMF duties.
“This procedure is in no way incompatible with the current functions of the managing director of the IMF,” he said in a statement. Lagarde declined to comment for this story.
Lagarde worked to overcome dissent that threatened her nomination. Indian Finance Minister Pranab Mukherjee called for non-Western nations to play a bigger role in an organization formed to monitor and lend to the world’s economies. Many agreed with him.
“It is important to have a greater say from emerging markets because they have been through more crises and have come through them more successfully than the industrialized world,” says Kevin Gallagher, associate professor of international relations at Boston University.
Courting Emerging Nations
Lagarde got the point. To help build a following, she traveled to Brazil, China, Egypt, India and Saudi Arabia and also met with African finance ministers who had gathered in Lisbon. She promised to be more inclusive of emerging economies. Lagarde’s pledges won Mukherjee’s support, which helped her beat her leading rival for the IMF job, Mexico’s central bank governor Agustin Carstens.
It may be easier for Lagarde to make the case for greater heterogeneity at the IMF: She didn’t scale French politics by attending one of the elite grande ecoles, hasn’t aligned with a party and grew up in Le Havre, out of the Paris limelight. Lagarde formed her early political notions in the U.S. -- not France.
She traveled to Washington in 1973 as a high school exchange student at Holton-Arms, a private girls’ school in the capital’s Bethesda, Maryland, suburb. She interned in 1974 for William Cohen, the Republican congressman from Maine who became defense secretary in 1997.
Back in her homeland, Lagarde twice failed to gain admission to the Ecole Nationale d’Administration, a top school for the French elite. She pursued law at what is now Paris West University Nanterre La Defense and got a master’s degree in American literature and a postgraduate diploma in business and labor law. She joined the Paris office of Chicago-based law firm Baker & McKenzie LLP in 1981.
She rose quickly to partner in 1987 and to selection as one of two European representatives on the seven-member executive committee in 1995. Known as a tough negotiator in complicated cases, Lagarde became the firm’s first female global executive committee chairman in 1999, overseeing more than 3,400 lawyers.
Lagarde caught the interest of Dominique de Villepin, the French prime minister, who offered her the post of trade minister in 2005. Two years later, Sarkozy appointed her minister of economic affairs, finance and employment, making her the first woman finance chief in the Group of Seven, which includes the U.S., Canada, Japan and the biggest European nations.
Attracting a Following
Lagarde, who now lives in Washington, is attracting a following. With her silver hair and 6-foot (183-centimeter) frame, she’s an imposing presence. Well-wishers mobbed her at the Bastille Day party at the French ambassador’s residence on July 12. A photo shoot by fashion magazine Vogue boosted her rock-star credentials into a league with previous subjects: Secretary of State Hillary Clinton and First Lady Michelle Obama.
As financial markets reeled in early August, Lagarde showed her trademark equanimity and inclusiveness. She applauded statements by the European Central Bank, the G-7 and the leaders of Germany and France to ensure stability.
“This cooperation will contribute to maintaining confidence and spurring global economic growth,” she said.
With another crisis in full force, Lagarde, who helped unite jittery governments last year, finds herself in the thick of things.
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