Suppose you walked through a growing menagerie of animals meandering around a great big half-built wooden vessel and you asked its builder, “Noah, what’s with the boat? There’s no water around here. You expecting a flood? And what’s with all these animals? Some of these beasts look dangerous.”
Now suppose Noah answers, “Floods? Heck no. I just needed a hobby, and we had all this wood lying around. Fire hazard, you know? As for the animals . . . I think they just like my wife’s cooking.”
That’s about how Christine Lagarde, managing director at the International Monetary Fund (IMF), responded when asked about the additional $430 billion in resources promised to the IMF. Anticipating the impudent suggestion of massive new bilateral loans to bail out Europe from these enhanced IMF resources, Lagarde responded, “Those bilateral loans which are to be drafted and signed from now on do not form a special pot of funds of coffers that would have an EU label on it.”
Flood? What flood?
Or her statement may recall the old line about the fellow who was caught by his spouse in flagrante delicto and countered “Who are you going to believe, me or your lying eyes?”
Ms. Lagarde’s statement flies in the face of incontrovertible evidence. It is well known the IMF’s recently expanded resources have one purpose and one purpose only: to buttress Europe’s own bailout funds. Even the chairman of the IMF’s policy committee, Tharman Shanmugaratnum, acknowledged the need to build up the firewall to contain further crises, saying “We all agreed it was absolutely essential to have a firewall built up at this time.” Where’s the fire? Europe.
This is about the application of the rule of five Ps — previous planning prevents poor performance. And for that, the IMF and Europe’s leaders deserve some credit. They know, some day soon, the string will finally run out for Europe as it tries to defer the consequences of past policy errors, most especially the adoption of an unaffordable social and economic compact, compounded with a fatally flawed monetary union.
To argue to the contrary, that these new IMF resources have any other purpose, is breathtaking either in self-delusion or the conviction to maintain the charade at all cost. Either way, the whole episode makes one wonder how Lagarde, only recently installed at the IMF after her predecessor was booted in disgrace, can maintain her credibility with the public or the markets. How she maintains credibility with Europe’s leaders is plain enough.
In her defense, Ms. Lagarde may know full well how foolish her statement rang. Sometimes, you have to take one for the team. If so, then Lagarde has taken a big one, and the outcome is likely the same either way. Fortunately, she still has Paris, and that’s not all bad.
— J. D. Foster is the the Heritage Foundation’s Norman B. Ture Senior Fellow in the Economics of Fiscal Policy.