IN what looks like a coordinated campaign, supporters of Gordon Brown to be the next head of the International Monetary Fund are making a last minute effort to influence world leaders attending the G8 summit at Deauvillin in France, which opens on Thursday.
Among those calling for Brown to head the IMF is David Blanchflower, a much respected former member of the Bank of England’s Monetary Policy Committee and one of the few economists to predict the global credit crunch.
Two American Nobel Prize winners in economics, Joseph Stiglitz and Paul Krugman, have also said the former Labour Prime Minister should lead the IMF. This is an important move given that President Obama may be in a position to provide the casting vote in the contest to replace Dominique Strauss-Khan, who was forced to resign after being charged with rape in New York.
The Coalition Government has already ruled out backing Gordon Brown, on political grounds. But President Obama is known to be much closer to Brown than to David Cameron.
Another endorsement has come from the crossbench peer and internationally respected economist, Lord Skidelsky. He commented: “It is absolutely scandalous that the British Government is not putting [Gordon Brown] forward – in fact, it has done the reverse and made it clear that it would oppose him.”
Sir James Wolfensohn, the former president of the World Bank, is another Brown supporter. Wolfenson said: “Gordon Brown has proved that he has the leadership skills, the vision and the -determination to bring the world together.
“All candidates being ¬considered have great talent but for me there is no greater candidate than Gordon Brown.”
The arrest of the IMF’s outgoing Managing Director, Dominique Strauss-Kahn, has plunged the IMF into crisis. The EU – which commands a third of the votes on the IMF’s board of governors – is in conflict with the rest of the world, over who should replace Strauss-Khan.
The EU wants to exercise its traditional seniority and appoint a European, arguing the IMF’s priority is stopping Greece, Ireland and Portugal from defaulting and causing chaos in the eurozone. The developing economies want a non-European, partly to emphasise their greater role in the global economy, and partly because they want the IMF to focus on boosting global trade. So far, Obama’s Whitehouse is sitting on the fence.
Ordinarily, appointing the head of the IMF would not cause a fuss. But in the aftermath of the global economic meltdown in 2008, Strauss-Khan seized the initiative and persuaded the IMF’s member countries, which number 187, to dramatically increase the cash available to the organisation. The Fund’s lending capacity was tripled to $750 billion, enabling it to inject extra liquidity into the world economy. Without the IMF, the Baltic States, Hungry, Greece, Ireland and Portugal would all have defaulted.
This represents a dramatic turnaround in the IMF’s fortunes. The original purpose of the Fund was to provide member states with the foreign currency (i.e. US dollars) needed to fix exchange rates. During the Fifties and early Sixties, this model seemed to work. However, in the Seventies, the fixed exchange rate regime collapsed, rendering the IMF without a purpose. It was only because Strauss-Khan seized the moment in 2008, to provide the world with a vehicle to pump liquidity into a deflating global economy, that the IMF got back into business.
Who will replace Strauss-Khan? Europe will only get its way if it can unite behind a single candidate. That is not guaranteed. The French want Christine Lagarde, 55, Sarkozy’s Minister of Finance. The UK has also come out for Lagarde.
Some Asian countries favour Singapore’s finance minister, Tharman Shanmugaratnam. China wants a non-European but lacks a strong candidate of its own (though commentators in China have suggested Zhu Min, an IMF special adviser).
However, the developing economies have been too slow to decide on a common candidate so it looks like the Europeans might get their way and impose Christine Lagarde. But she has a number of black marks against her name – which might explain the last minute push to present Gordon Brown as a compromise candidate who is a European but has credibility in the developing world and in the White House.
David Blanchflower argues that Brown is preferable to Lagarde, a former Chicago lawyer, because of “ethical issues” that dog the French candidate. These involve her professional relationship with Bernard Tapie, a maverick businessman and close friend of President Sarkozy.
Tapie has been head of Marseille football club, head of the Adidas sports empire, did seven months in jail for match-fixing, was convicted for tax fraud, and has also been a singer and chatshow host. For two decades, Tapie has pursued a court battle claiming he was cheated by Credit Lyonnais bank, which handled the 1993 sale of Adidas. Meantime, Credit Lyonnais has been wound up and its liabilities taken over by a consortium operated by the French state.
In 2007, Lagarde used her position as Finance Minister to intervene in the legal process. She ordered a special panel of judges to arbitrate. In 2008, they ruled that Tapie should receive £250 million in damages. This out-of-court settlement scandalised France. One moderate politician, Francois Bayrou, claimed it was “unthinkable that the state dips into the taxpayers’ pocket for a private beneficiary”. Earlier this month, a French public prosecutor recommended a judicial investigation into Lagarde’s decision, throwing the whole episode wide open.
David Blanchflower also attacked Christine Lagarde’s rightwing ideology. He claims she is part of the “Chicago austerity” group of economists – a reference to followers of arch-monetarist Milton Friedman.
“This ideology has failed everywhere it’s been implemented – look at Portugal,” Blanchflower said, pointing to the Eurozone member whose government recently agreed a €78bn bailout with the EU in return for making massive cuts in public spending.
Curiously, the Irish Government, which is also being forced to make huge cuts, has come out in favour of Lagarde. But this may just be a way for Dublin to win French approval and head off President Sarkozy’s campaign to force Ireland to raise its low corporation tax.
The leaders of the G8 nations meet at Deauville in France on Thursday, where there will be heavy lobbying to secure Lagarde’s candidature. The wild card is President Obama, who has yet to declare his hand.