Lagarde’s metamorphoses, not a laughing matter

IMF head Christine Lagarde speaking in Manila

International politico-economic relations is a tricky field, with the major players constantly changing stance, according to their short term interests, putting aside whatever honourable principles are left in their decision making procedures. And all that being discussed and decided upon, by a handful of people behind closed doors. If those people were not playing with the fate of entire nations, their metamorphoses could have been the subject matter of a perfect comedy. Unfortunately this is the point where comedy meets tragedy.

Take for example the head of the International Monetary Fund, the French ex minister of Finance, Christine Lagarde. For many months she has being reprimanding Greece for not doing what it takes to reduce its mounting debts, despite the fact that the country had being cutting down government spending up to the point where its economy lost almost one fourth of its product and incomes, bringing the internal socio-political climate to the region of explosion. Austerity is been haunting Greece for almost three years now.

This past week however Lagarde completely changed its stance vis-à-vis Greece. She is now holding Berlin responsible for not doing what it takes to help Athens break the vicious cycle of recession and public spending cuts. On top of that Lagarde this week asked Greece’s Eurozone creditors including the European Central Bank to forgive a large part of their Greek loans, so as the debt ridden country could return to markets and restart its economy. Until now the IMF considered any kind of credit as sacrosanct and never supported a direct hair-cut of past loans.

Despite that Lagarde didn’t care to explain the new full U-turn in IMF’s stance towards Greece. She just said that the IMF could pull out from the troika (IMF-ECB-EU Commission) managing Greece’s fate, if the Europeans do not accept a deep hair-cut on the Greek bonds they hold. At the same time the Fund would not accept a similar treatment on its own credits to Athens. Given that the IMF has being traditionally very strict whenever it undertook a country bailout, it is at least astonishing why now it demands that Greece’s official Eurozone creditors, follow the paradigm of their private colleagues, the banks, in accepting a deep hair-cut on the Greek debt they hold.

Fortunately it is not at all difficult to explain this IMF novelty. It’s not that the Fund’s directors suddenly took stock of what the western world owes to the ancient Greeks. It is rather the fact that the fragile resumption of the American and the world economy cannot stand a new financial crisis, with Greece falling apart, as Lehman Brothers did in 2008. It seems that, now all major IMF members from Washington and Beijing to Moscow and Brasilia are holding Berlin responsible for not solving the Greek knot.

As long as a Greek disaster keeps looming over the world economy, it is impossible for the global financial  system to stabilise itself and restore confidence. It seems that the €180 billion which are needed to bailout Greece, its nothing compared to what a Greek tragedy could cost the globe in financial and political terms. More so after the re-election of President Obama, who’s economic policies favour government spending and monetary easing. It would have being a laughing matter watching Lagarde’s metamorphoses during the past months; unfortunately it is rather a tragedy because it affects badly the lives of billions of people.