The boss of the IMF, Christine Lagarde, has been talking the past few days. She said some things that I thought were interesting.
A few weeks ago, the ECB’s Mario Draghi laid out his plan to buy unlimited amounts of bonds of Spain and Italy in a desperate attempt to stabilize the European bond markets. In order to placate German criticism of the bailout, Draghi made it clear that there would be stiff “conditionality” that must be accepted by Spain and Italy before any bond buying is commenced. To give teeth to the promise of conditionality, Draghi was very specific that both Spain and Italy would have to accept an IMF involvement in the internal affairs of the countries involved. Mario said:
“The involvement of the IMF shall be sought also for the design of country-specific conditionality and the monitoring of such programs.”
Lagarde has responded to Draghi’s proposal with her full support (Link):
According to Christine, the IMF is ready to roll up its sleeves and get down to work “fixing” Spain and Italy’s financial affairs:
“The IMF would be an active player in restoring the situation in the euro zone.”
“We obviously have to do it under our normal framework, which implies conditionalities.”
“The IMF is ready to get involved in designing and monitoring its implementation.”
Think about the implications of this. The IMF is going to set up a “mission” in Rome and Madrid. There will be hundreds of IMF technocrats running around insisting that the countries bend over backward and accept the severe austerity measures that always come with an IMF bailout.
To the people of Spain I say:
Don’t let this woman in your country! She will make your life miserable. You will loose your financial destiny the day she arrives. Your unemployment rate will rise, your economy will suffer. Your political leaders will have given up the authority to rule on critical issues. You will become a ward of the IMF state.
Don’t believe me? Then please ask other Spanish speaking countries what they think of the IMF. Ask Mexico, Chile or Argentina if they hate the IMF. They do.
To the people of Italy I say:
I can’t believe you would allow this to happen! Your country is not bankrupt; you do not need to become a slave of the IMF. Your fellow countryman, Mario Draghi, has put you in a vice. Now you must come begging to him on your knees for help. While you are on your knees begging, you must accept that Christine Lagarde comes into your country and tells you what you can and can’t do.
I urge you to talk with the people of Brazil. They have been under the thumb of the IMF. They hated it. So will you.
Of course Ms. Lagarde is a political hack that plays to two audiences at once. She also had this to say about Italy and Spain:
IMF Managing Director Christine Lagarde said large, debt-strapped euro zone countries Spain and Italy had taken enough action to merit aid.
Already “taken enough action” you say, Ms. Lagarde? Are you saying that no more reforms are needed? That Italy and Spain don’t have to bite the bullet? Does this mean that the promise of “conditionality” has no substance? It sure sounds like it.
To the people of Germany I say:
The involvement of the IMF in the affairs of Spain and Italy is the only protection that you have. Lagarde has said that nothing more needs to be done to allow them to borrow freely, at cheap rates, and from your country’s Treasury vault!
If there is no conditionality, then you are about to write an enormous check. It will be measured in the Trillions of Euros once the floodgates are open. The wealth of your country is about to head south.
Do you really want this to happen?
Which is it Ms. Lagarde? You can’t have it both ways, and there is no compromise in the middle. Either there is meaningful conditionality, or there is not. Are you lying to the people in Spain and Italy? Or are you lying to the citizens of Germany? Is it possible you are lying to all of the countries involved?
.
Lagarde, Draghi, Bernanke, Krugman, (Henry) Paulson, Tim Geithner — they are all LIARS AND THIEVES
If you take money with zero intent of ever paying it back yourself — it is not debt, it is theft.
Not one of these losers is even talking about running balanced spending, much less paying debt back during their lifetimes. They are criminals, pure and simple
And so… history repeats once again:
@Ralph the racist:
Why are you trying to blame the Jewish religion for anything? Are you trying to imply that all Jews are liars?
Infinite Money Funneling, Infinite Money Fabrication, International Monetary Facade. International Mobster Financing….
The whole global finance system is a facade, pull back the debt curtain and meet OZ…
BK; Took some time to think about this post and have one question.Would this mean that the IMF is basicly a proxy of Germany as to what any country in EURO recieving bailout can or cannot do?
Hey Bruce.
If I were thinking of lending money to Italy or Spain (or any country) I’d insist on some conditions ensuring these countries become solvent by cutting the size of the state.
Unemployment will rise for sure, but who needs millions of leeches working for the state doing worthless jobs?
Most of your articles seem to assume there is another easy and painless way out of this mess? There isn’t, it’s either the ECB-led way, or the Fed-led way. Currency stability versus currency debasement and eventual collapse.
I’m sure Europe will emerge much stronger for saving its currency than the US will for killing the dollar.
The IMF issue is a non-issue, as conditionality is being driven by the Germans and the ECB.
Sometimes you criticise the Fed for QE, sometimes you criticise the Eurozone for austerity. I propse you can’t have it both ways.
Regards.
I’m a writer, not a policy maker. I’m allowed to go both ways.
I do criticize the Fed. They deserve criticism. The Fed has gone over the top with Ultra-loose monetary policies. We probably will get more tomorrow. I think this is not necessary, will accomplish little and has substantial downsides.
I do criticize the EU, EMU, ECB and all the rest. Step back, look at the big picture. A fixed currency relationship between Germany and Spain can’t survive indefinitely. It has never worked before in history, it will not now.
There has been a rolling crisis for years. There will be a rolling crisis for many more years. The direction that this is going troubles me. The north is going to absorb the debts of the south. And then there will be a crash.
I think what the EU leaders are doing is a desperate effort to buy time in the hope that imbalances can be fixed, and the good times will again roll. That will not happen until the weak countries exit the Euro.
bk
Imbalances will be fixed once the world ceases to use debt as a reserve:
http://www.bis.org/review/r111006h.pdf
There is no fundamental problem with the Eurozone using one currency, it is just a method of exchange and unit of account after all. The problems come when the debts of the South make their way up North. And it’s the same the world over.
You may not see it, but the dollar is doomed as the world’s reserve, to be replaced by the Euro, with free-floating physical only (very highly valued) gold used as the world’s trade balancing item.
I have read hundreds of hours of research on the Euro’s design and the reasons behind it, so I am not just guessing.
No countries need to exit the Euro, we just need to wait a few years til the dollar collapses, paper gold contracts are defaulted, and the world reaches a more equitable global monetary system.
Email me if you want more details.
I am struggling to comprehend the German Constitutional Court’s analysis fully. They appear to have Ok’d, subject to conditions that have been reported, the EFSF and the ESM, but their analysis seems to depend in part on the fact that these are actually separate organizations from the ECB with their own capital, governors, etc., and limited liability of the FRG beyond that. They go on to say at numbers 204 & 245 of the judgment (which can be read here: http://www.bverfg.de/en/decisions/rs20120912_2bvr139012en.html )
that the ECB itself cannot monetize member states’ budget deficits. So I can somewhat puzzling about how the Draghi plan can be implemented thru the ECB.
I also was struck as I read the judgment of the irony that the “conditions” imposed by the Court are all preservations of FRG fiscal sovereignty, while the “conditions” to be imposed on the Spains and Greeces of the world will be designed to curtail those nations’ fiscal sovereignty.
Bruce,
You should be ashamed of yourself for letting that Hitler post stand intact.
Chacha
Hmmm. I’m not sure I can delete this??
I recently moved from Blogspot to my own wed site. At Blogspot I had the capability to delete comments. I deleted a number that were offensive. And then I got attacked with a barrage of comments that were even more abusive. So I had to do a bunch of more deletes, it got out of hand. I hated it, and do not want to have to do it.
What to do?
1) I’ll find out how to delete “offensive” comments.
2) I’ll think about what “offensive” means, and what I ought to do about it.
Okay. It’s gone.
b
Wow, The Ben Bernank broke out the bazooka today.
Looking fwd to your next post…
This looks nakedly political, why wait till now? It’s not like anything substantive has changed except that the election has gotten closer. The stock market is still way HIGH and interest rates are way LOW and killing retirees, plus the jobs number LOOKS OK because so many have quit looking but the jobs number is actually TERRIBLE if you look at the overall count of employed Americans.
In other words, same as last week, same as last month, same as last year.
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