- By David RothkopfDavid Rothkopf is visiting professor at Columbia University's School of International and Public Affairs and visiting scholar at the Carnegie Endowment for International Peace. His latest book is The Great Questions of Tomorrow. He has been a longtime contributor to Foreign Policy and was CEO and editor of the FP Group from 2012 to May 2017.
A voice of reason and leadership has emerged in recent days among those addressing the economic crisis in Europe, currently the most urgent and dire challenge facing the international community.
Unlike in the past, that voice is not however, the president of the United States, who has remained strangely quiet on this subject despite its direct implications for virtually all of the core U.S. economic issues that are his stated top priorities. Nor is it that of his secretary of the treasury who, though more visible on this issue recently, has not instilled confidence with statements that have, for example, asserting that under no circumstances would European leaders let their institutions fail, even though that has been precisely what they have been doing for years now.
Instead, the new voice comes from rather unlikely roots — a scandal-rocked organization whose future value to the international community had, in the not-so-distant past, been questioned and a prior post that can only be seen as a potential drag on her credibility.
That voice however, belongs to IMF chief Christine Lagarde, and it has been so direct and crystal clear, so unafraid and so thoughtful, that within mere weeks of assuming office she has quickly gained recognition as one of the most important of the world’s leaders.
Take her most recent remarks on the euro crisis and its international implications. In the first instance, she has crisply and accurately warned that a "vicious circle is gaining momentum" that could not only upset european efforts at bailing out its weakest economies but that also poses a threat to the world’s financial system and to many of its so-called strongest economies, such as those that are the engines of european growth and that of the United States. At the center of that vicious circle she placed "political dysfunction" that had produced what has amounted to policy paralysis and may have us on the verge of a "dangerous new phase" of this on-going economic calamity.
Further, even as Central Banks agreed to pump in more money to prop up faltering banks, she suggested more might be needed. "Balance sheet uncertainty" was the immediate culprit, she observed, noting it existed at the government, bank and household levels. She accurately cited this as the core risk we face but then, with wisdom greater than most European and American political leaders, noted that debt solutions should not be so severe that they undermine the equally crucial issue of growth in Western economies.
She specifically and directly assailed "fiscal austerity that chips away at social protections; perceptions of unfairness in Wall Street being given priority over Main Street; and legacies of growth in many countries that predominantly benefited the top echelons of society." One can only hope her remarks resonated with all her new neighbors in Washington.
Of course, she could have gone farther. The fact that once again the banking community has put the rest of the world’s futures at risk thanks to its mismanagement and greed and that, for the second time in three years, the cost will be trillions in lost growth and destroyed market value and hundreds of billions in bail out money, should be producing something more than outrage. It only reveals the inadequacy of current oversight, the complicity between regulators and bankers, and rigged nature of what is now an international system that effectively has put up the lives and work of everyone on the planet as the collateral that can back the bad bets of an irresponsible few who reap big rewards when they succeed and escape responsibility when they fail as they all too frequently do.
Lagarde suggested that the risks of social unrest were high. She is right but watching all this, one can only wonder why they are not higher. Here in the United States, with a system that has for the past dozen years essentially only offered growth and big rewards to the top one percent while squeezing the other 99 percent ever tighter and pushing more and more into poverty, we still see a government seemingly on track to cut back the benefits for the majority in order to fund support or tax benefits for elites. It is still hard to understand how the housing crisis that started it all, a crisis that crushed the retirement resources of the majority of Americans in ways deeper and more immediate than any looming problems with Social Security or Medicare might, goes unaddressed. We still have faintly ringing in our ears the financial fixers in the government saying that they had to address "systemic risks" on Wall Street while leaving the market to take care of the fate of individual home owners … even though those homeowners were in fact, the real system, a system on which the world was depending for the consumer confidence and wealth creation that had made America the engine of its growth and the world’s marketplace of last resort.
Fareed Zakaria, in a typically smart piece on the euro crisis that underscored the centrality of China to any of its successful outcomes, suggested that Lagarde might be the last head of the IMF not to come from China. Given the country’s reserves and growing wealth, not to mention the fiscal track record of europe, historically the source of the Fund’s leadership, that may prove to be a prescient observation. (Although it must be said China has quite a bit to prove in terms of the soundness of its own fiscal, monetary and financial system management.) Certainly, I think it is fair to suggest that this is the first global economic crisis in which China’s role with regard to its disposition will be central; they’ve got the cash and this one is going to require a ton of it. That said, at this stage of this particular slow-motion global economic train wreck, it certainly seems we should be grateful that we have Christine Lagarde right where she is doing what she is doing and saying what she has been saying.