Cracks at the top

Eurozone crisis live: Lagarde calls for growth amid austerity row

Christine Lagarde of the IMF warns that without growth, the future of the global economy is in jeopardy, as Germany's Wolfgang Schäuble hits back over austerity study

the Guardian,

12 October, 2012

A split appears to be opening up between the International Monetary Fund and eurozone leaders, following the IMF's admission this week that austerity is more damaging than it thought (see 8.20am).

Germany's finance minister, Wolfgang Schäuble, and EC commissioner Olli Rehn have both taken issue with Lagarde after she called for more caution on austerity.

The attacks came after the IMF published, and then endorsed, a survey that declared that world governments (and the Fund) have systematically underestimated the damage done to growth by austerity.

First came Schäuble, who argued that it made little sense to tackle high debt levels by deliberately making them higher.

The FT has the quotes:

When there is a certain medium-term goal, it doesn’t build confidence when one starts by going in a different direction

When you want to climb a big mountain and you start climbing down the mountain, then the mountain will get even higher.

Olli Rehn then weighed in a couple of hours later, telling CNN that Schäuble "had a point"

The EU cannot be making swift turns, rather it is a convoy and you have to carefully consider which policy turns are best.

But the implications of the IMF's study are clear (and vindication of Keynesian types who have railed against Europe's passion for imposing deep cuts on countries struggling with high debt levels)

FT Alphaville calls it a Game Changer moment.

Live coverage by the Guardian HERE

Lagarde vs. Rehn: Needed debate, or dangerous split?

Big divisions are appearing among the key players responsible for the eurozone's tough austerity program.

CNN,

12 October, 2012

The International Monetary Fund and the European Commission are at odds over which is the best way forward.

As millions of Europeans feel the biting impact of austerity measures, IMF boss Christine Lagarde says it's time to hit the brakes.

German Finance Minister Wolfgang Schäuble says changing directions now would lead to a critical loss of confidence in the whole plan.

And European Commission Vice President Olli Rehn says the IMF's findings "can be disputed."

It started on Monday when the IMF said that specific debt reduction targets, which underpin most of the austerity programs in place across recession-ravaged Europe, have a much deeper impact that expected.

New IMF research says that pruning a budget deficit by one percentage point could mean a cut in economic growth of between 0.9% and 1.7%. That is up to three times more severe than the current economic models suggest.

In other words, debt reduction is having a much more severe affect on growth than first thought.

It's led Lagarde to say that the austerity programs should not focus on specific targets and that countries should be given more time to cut their debt.

Schäuble shot back the next day. He told the Financial Times "when there is a certain medium-term goal it doesn't build confidence when one starts going in a different direction."

"When you want to climb a big mountain and you start climbing back down the mountain, then the mountain will get even higher," he said.

Next to weigh in was Olli Rehn. He told me today that he was not yet buying the IMF argument.

"The findings can be disputed and I am looking forward to extensive negotiations on this," he said.

"Even the IMF can be open to criticism -- it does not have the final word."

So, a needed debate or a dangerous split? Rehn, ever the diplomat, says he sees this as a sign of "healthy policy debate over the right course of action."

But he does support the German view. "He (Schäuble) has a point. The EU cannot be making swift turns, rather it is a convoy and you have to carefully consider which policy turns are best."

The EU will produce its own conclusions about the impact of austerity measures next month. Whether that brings us any closer to a consensus is hard to judge.

Remember the old joke about economists: if you laid all the economists in the world end-to-end you still wouldn't reach a conclusion.

But this is no joking matter. Millions of Europeans have fallen into poverty or at least economic hardship as a result of the current austerity programs.

Getting the right mix of policies to deal with the crisis not an option, it's an imperative.

Downgrading growth forecasts

IMF's Christine Lagarde warns of more global growth cuts

The International Monetary Fund looks likely to cut its forecast for global growth next month when it updates its projections for the world economy

BBC,

24 September, 2012

IMF head Christine Lagarde said in a speech that global growth would "likely be a bit weaker" than anticipated.

Problems in the eurozone and worries about the US economy continued to weigh on investors' confidence, she said.

She also warned of a slowdown in some of the emerging nations that previously bolstered global economic growth.

In July, the IMF cut its global growth projection for 2013 to 3.9%, but left its 2012 forecast unchanged at 3.5%.

Mrs Lagarde, speaking in Washington, said on Monday: "We continue to project a gradual recovery, but global growth will likely be a bit weaker than we had anticipated even in July, and our forecast has trended downward over the last 12 months."

She welcomed recent measures by eurozone governments and the European Central Bank to get a grip on the bloc's problems.

Earlier this month, the ECB said it would buy an unlimited number of bonds from distressed eurozone countries. "It was clearly a turning point," Mrs Lagarde said.

But she added that region was still "the epicentre" of the crisis.

Mrs Lagarde also said the US must avoid plunging off a fiscal cliff of deep government spending cuts and tax increases that could cause another recession and harm the global economy.

No tax for IMF chief

Cudos to the Guardian for revealing this little bit of info.

Christine Lagarde, scourge of tax evaders, pays no tax

IMF boss who caused international outrage when she suggested that Greeks should pay their taxes earns a tax-free salary

the Guardian,

31 May, 2012

Christine Lagarde, the IMF boss who caused international outrage after she suggested in an interview with the Guardian on Friday that beleaguered Greeks might do well to pay their taxes, pays no taxes, it has emerged.

As an official of an international institution, her salary of $467,940 (£298,675) a year plus $83,760 additional allowance a year is not subject to any taxes.

The former French finance minister took over as managing director of the IMF last year when she succeeded her disgraced compatriot Dominique Strauss-Kahn, who was forced to resign after he faced charges – later dropped – of sexually attacking a New York hotel maid.

Lagarde, 56, receives a pay and benefits package worth more than American president Barack Obama earns from the United States government, and he pays taxes on it.

The same applies to nearly all United Nations employees – article 34 of the Vienna convention on diplomatic relations of 1961, which has been signed by 187 states, declares: "A diplomatic agent shall be exempt from all dues and taxes, personal or real, national, regional or municipal."

According to Lagarde's contract she is also entitled to a pay rise on 1 July every year during her five-year contract.

Base salaries range from $46,000 to $80,521. Senior salaries range between $95,394 and $123,033 but these are topped up with adjustments for the cost of living in different countries. A UN worker based in Geneva, for example, will see their base salary increased by 106%, in Bonn by 50.6%, Paris 62% and Peshawar 38.6%. Even in Juba, the capital of South Sudan, one of the poorest areas of the world, a UN employee's salary will be increased by 53.2%.

Other benefits include rent subsidies, dependency allowances for spouses and children, education grants for school-age children and travel and shipping expenses, as well as subsidised medical insurance.

For many years critics have complained that IMF, World Bank, and United Nations employees are able to live large at international taxpayers' expense.

During the 1944 economic conference at Bretton Woods, where the IMF was created, American and British politicians disagreed over salaries for the bureaucrats. British delegates, including the economist John Maynard Keynes, considered the American proposals for salaries to be "monstrous", but lost the argument.

Officials from the various organisations have long maintained that the high salaries are a way of attracting talent from the private sector. In fact, most senior employees are recruited from government posts.