Saturday , November 16 2019
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Europe should stay out of the race for IMF head

Summary:
My Wednesday blog post is designed to be short in time commitment. It clears a bit of space in the day to catch up with other more mundane matters (research contracts, some coding – I am learning Swift at present, and stuff like that). But I thought a small viewpoint on the latest dealings over who will become IMF boss were easy to dispense with today. And in that context, it was hard to go past Wolfgang Münchau’s Financial Times column – Do not treat the IMF as an EU consolation prize (July 21, 2019). He sums up the situation perfectly – “The world needs a first-rate person to run the IMF. It should not allow Europe to treat the fund as a dumping ground for washed-up officials.” Adam Tooze also weighs in on the same issue in his Social Europe article – The International Monetary Fund

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My Wednesday blog post is designed to be short in time commitment. It clears a bit of space in the day to catch up with other more mundane matters (research contracts, some coding – I am learning Swift at present, and stuff like that). But I thought a small viewpoint on the latest dealings over who will become IMF boss were easy to dispense with today. And in that context, it was hard to go past Wolfgang Münchau’s Financial Times column – Do not treat the IMF as an EU consolation prize (July 21, 2019). He sums up the situation perfectly – “The world needs a first-rate person to run the IMF. It should not allow Europe to treat the fund as a dumping ground for washed-up officials.” Adam Tooze also weighs in on the same issue in his Social Europe article – The International Monetary Fund leadership is not a bargaining counter (July 22, 2019). His conclusion is also spot on – “The eurozone crisis created a toxic codependency between the eurozone and the IMF which needs to be dissolved once and for all.” But it goes beyond the revolving door aspects of these positions and the Troika relationship that emerged during the GFC. The IMF is already in tatters – still in denial but realising its old positions are untenable – to allow the toxic austerity culture of Europe to take over the IMF would destroy any hope that the latter might abandon its neoliberalism and embrace the emerging macroeconomics paradigm that will replace dependency on monetary policy with fiscal dominance – just what Modern Monetary Theory (MMT) has been promoting.

The IMF position

Wolfgang Münchau is keen on Christine Lagarde and has written about his support for her to take over as IMF boss in 2011 and then the ECB now.

I question his judgement on both fronts.

No matter how much people see her as diplomatic master, she was convicted for negligence while French finance minister and in that role was party to inflicting austerity on defenceless nations refusing any debt relief.

Remember back in 2013, when Olli Rehn (the EC’s chief economist) told the world that the IMF criticism of the first Greek bailout in 2010 was hypocritical.

The IMF report – Greece: Ex Post Evaluation of Exceptional Access under the 2010 Stand-By Arrangement (released June 2013) – reflected on the bailout and argued that while “it is difficult to argue that (fiscal) adjustment should have been attempted more slowly”:

One way to make the debt outlook more sustainable would have been to attempt to restructure the debt from the beginning. However, PSI was not part of the original program.

The IMF said that it was clear that with the bailout causing damage to the Greek economy, debt restructuring was essential but the European Commission officials refused to countenance it.

Olli Rehn pointed out at the time that when she was French Finance Minister, Lagarde had gone along with the first bailout plan and has opposed any thought of debt restructuring for Greece. He was a hard core austerity maven.

He said (Source):

I do not recall Dominique Strauss-Kahn calling for an early restructuring of Greek debt, but I do remember Christine Lagarde opposing it.

So with Europe teetering on further crisis and still refusing to redress the basic design flaws in their monetary union, how can one think that Lagarde is a good choice for the ECB which must continue stimulating the Eurozone economy and illegally bailing out Member State deficits?

But that is not the issue here.

Wolfgang Münchau’s point is that the European Union does not have a good European candidate to replace Lagarde as IMF boss.

The shortlist that has been assembled includes former Dutch finance minister and head of the Eurogroup, Jeroen Dijsselbloem and others who “have a lot to answer for”.

Why?

They pushed austerity during the eurozone crisis. Mr Dijsselbloem once famously accused the crisis countries of spending their money on “booze and women”.

While Dijsselbloem is classified as a ‘socialist’ politically, there is no meaning in that classification. He is a front-runner for the IMF position – as a sort of consolation prize – because the “socialists did not get quite as much as they hoped for in the recent EU top jobs bazaar”.

This is the way it works in Europe. These elites divvy up the top positions (and salaries) among themselves along party lines with little regard for talent or suitability for the position.

In Wolfgang Münchau’s words:

… the problem with many top EU policymakers is deep-seated economic illiteracy. Austerity was one of the great policy tragedies of our time. It is what is behind the rise of the populist League in Italy. Matteo Salvini’s party is on the verge of an unprecedented power grasp.

He cites recent statements by the new ‘compromise’ EC President-elect as being “an almost comic rendition of economic illiteracy”.

The problem then is that this illiteracy translates into terrible policy interventions.

1 “Such a mindset brought us the fiscal compact”.

2. “It brought us the German debt brake”.

3. “And it brought Mr Dijsselbloem into the shortlist.”

He might have also said the policy bias (and obsession) brought about the destruction of Greece, forced millions of Europeans in joblessness, created regions of poverty as incomes were lost, increased poverty rates, caused a massive increase in suicide rates in some areas … and more.

Wolfgang Münchau is correct – the likes of the (not) socialist Dijsselbloem should never be in power again – and the IMF should not be the “consolation prize” for “washed-up officials” like him and his ilk.

The problem is that European elites are insisting that it is a European who gets this gig because they conceded in January 2019 to Donald Trump’s request that an American David Malpass be pushed into the top job at the World Bank.

So tit-for-tat – Europe gets the IMF post.

This then relates to Adam Tooze’s point that the GFC and the eurozone crisis in particular “created a toxic codependency between the eurozone and the IMF which needs to be dissolved once and for all.”

That toxicity cannot be allowed to continue – there should never be another Troika.

But with a European austerian appointed to the IMF, the link will be ever more closer.

Further, divvying up these international positions, which affect us all and poorer nations more so, on the basis of some sort of “intra-European political deal” (hence socialist Dijsselbloem gets the push because a right-winger gets the EC boss job) is disgusting and exemplifies the corrupt nature of the European Union.

And the two front-runners for the IMF post – Rehn and Dijsselbloem – are terrible choices.

Adam Tooze’s summary assessment:

The two candidates who would attract the support of northern Europe are deeply implicated in the disaster of the eurozone … Rehn vocally advocated the austerity line … But even worse would the man who is apparently the front runner, Jeroen Dijsselbloem, the former finance minister of the Netherlands. As president of the Eurogroup from 2013 to 2018, he personified the combination of populist northern resentment and fiscal narrow-mindedness that dictated eurozone policy towards Cyprus and Greece. If he were to emerge as the IMF’s managing director, it would be a truly horrible twist in the saga of the fund’s entanglement with the eurozone.

You can bet on the European elites being blithe to this sort of analysis and being keen to push their sick obsession with austerity into the IMF position.

There are many continuing vignettes that characterise the way in which the European Union has become a disgraceful institutional expression of the worst of neoliberalism and elite power hegemony.

That tendency is not a flavour or a passing fashion. It is built into the legal structure of the Union. It is resistant to any change.

And it will become more entrenched under the new leadership.

How any progressive person can see this as an organisation worth being a member of is beside me.

I was bemused that they would think so in the early 1990s when I started studying the EU in depth.

I am shocked in 2019 that the Europhile Left still hang onto their twisted dream that reform is just around the corner.

Still the dream keeps them busy writing reform plans and blueprints and that sort of thing. So that might be some sort of therapy.

Music to type fast to …

I dragged this out of the archives this morning. I had been listening to funk from Cameroon (Manu Dibango) – especially his 1972 release Soul Makossa (Fiesta Records, Paris).

And then I recalled an album that had come out the year before (1971) – Funky Nassau – which carried the incomparable title track.

The album was the work of a group of brothers who played early funk music and hailed from The Bahamas. They called themselves – The Beginning of the End.

They teamed up with a very funky guitar player (Livingston Colebrook) and very tight bass player (Fred Henfield).

The band’s title was prophetic because they didn’t last long but this song reached high up on the US and British charts.

But what they left for us was pure rhythmic magic.

It got me going this morning.

If you play the guitar you will love this sort of song with those sliding minor 7 chords and shifting https://en.wikipedia.org/wiki/Junkanoo beat patterns. Great workouts to get your wrists loose and your right hand syncing.

That is enough for today!

(c) Copyright 2019 William Mitchell. All Rights Reserved.

Bill Mitchell
Bill Mitchell is a Professor in Economics and Director of the Centre of Full Employment and Equity (CofFEE), at the University of Newcastle, NSW, Australia. He is also a professional musician and plays guitar with the Melbourne Reggae-Dub band – Pressure Drop. The band was popular around the live music scene in Melbourne in the late 1970s and early 1980s. The band reformed in late 2010.

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