07/11/2011 “beggars can’t be choosers”
Dear Sir/Madam,
Although it brings a welcome end to the slapstick DSK media affair, the ease with which Christine Lagarde was elected to the head of the IMF should not hide the fierce negotiations that allowed this to happen.
This is a case of keeping up appearances. Europe retains leadership of the IMF despite the irreversible decline in its influence in global activity. Let us take a closer look at this. It holds 32% of the Fund’s capital yet now accounts for just 19% of global GDP. In contrast, emerging markets combined hold only 36% of the Fund’s capital but generate 49% of global activity. Aggravating circumstance: they hold 67% of the world’s currency reserves, which makes them the planet’s de facto bankers.
Does this disprove the old dictum that “beggars can’t be choosers”? With European sovereign risks already equating to nearly 80% of its assets, the IMF has become a European support fund. The foreseeable implementation of a series of bailouts for Europe’s weakest countries will inevitably bring forward a rebalancing of power. It will be up to the talented Christine Lagarde to make the transition as painless as possible.
In the meantime, the slowdown of the US economy and the ineptitude of the ECB’s policy are becoming clearer and further undermining European activity, which was already weak to begin with. In contrast, emerging countries’ grip on inflationary pressures – albeit slightly more laborious than we expected – justifies the gradual lifting of economic stabilising measures taken in recent months and eases fears about their ability to sustain high growth rates.
It is left for me to wish you a happy, relatively calm, summer. Yours faithfully,
Edouard Carmignac