Christine Lagarde - A short profile of the woman who wants to lead the IMF

When President Nicolas Sarkozy was mulling over a reshuffle of his government last autumn and thinking of replacing his prime minister, one name that almost never surfaced was that of Christine Lagarde. To outsiders, this might seem surprising. France’s first female finance minister, and its longest-serving since 1974, has made a name in international circles as a widely respected and skilled professional. But there is something about her straight-talking, business-like approach that has never been fully appreciated by the score-settling, rumour-mongering world of French politics. It took her growing reputation abroad to finally win her respect at home.

This mix of Frenchness and internationalism is very much Ms Lagarde’s hallmark, and can be a source of tension. When she stepped off the plane from Chicago, where she was global president of Baker & McKenzie, a law firm, to join the government under President Jacques Chirac in 2005, almost her first public comment was to criticise the rigidity of France’s labour market. The French were horrified; Ms Lagarde carefully rephrased her thoughts, and an early lesson was learned about how far it is possible to bring economically liberal ideas into the French political debate.

Indeed, appointed finance minister in 2007 by Mr Sarkozy, Ms Lagarde has not hesitated to defend what she considers to be in French interests, such as the regulation of hedge funds or an international tax on financial transactions. This leads some commentators to wonder what her real convictions are, and whether she has sacrificed her more market-friendly instincts in order to forge a political career in statist France. Yet she has also quietly got on with some liberalising reforms. While dutifully pushing some of Mr Sarkozy’s dafter ideas abroad, she has also done a fair amount to try to inject more competition into the French economy (such as strengthening the anti-trust watchdog), and to boost public-sector efficiency (such as merging the job-placement and unemployment-benefit agencies).

Ms Lagarde’s main strengths are a mix of hard-working professionalism, an appetite for technical detail, and an ability to get her way with charm rather than bullying. She often seems more at ease at global summits than on the benches of the unruly French National Assembly. It is hard to find anybody who has worked for her in France over the years who has a bad word to say about her. As a teenager, she was a member of the French national synchronised swimming team, and she likes to joke that this taught her not only teamwork and self-discipline, but also how to hold her breath. Her quick wit, in fluent English as well as French, even managed to win over Jon Stewart when she appeared on the Daily Show, bearing a French beret as a gift. In the past she has said that there was “too much testosterone” in high-powered circles, a comment that now looks prescient.

At a news conference on May 25th, Ms Lagarde conceded that being European was not necessarily an asset for a candidate to run the IMF, but hoped that it would not be regarded as a handicap either. Her central role in dealing with the euro-zone debt crises, during which she has been a consistent advocate of bailing out debt-ridden governments, could put her in a potentially awkward position at the fund. More worrying for the French, there is an outstanding legal inquiry hanging over her.

A public prosecutor is investigating whether there is any ground for a full inquiry into a decision Ms Lagarde made as finance minister linked to a long-running damages case brought against the state by Bernard Tapie, a French tycoon. She ruled that it should be taken out of the courts and settled through an arbitration panel. As a result, Mr Tapie was awarded more than €200m ($280m) in damages. Ms Lagarde said today that she has a “clear conscience” over the referral. Her advisers say that she followed procedure, and was acting in taxpayers’ interests, as the court case was costing public money every year that it went unsettled. But the timing, in the wake of the arrest of Dominique Strauss-Kahn, is unfortunate. Right now, the French can ill-afford even the whiff of impropriety.

Spain’s young want jobs

"The markets want reform and voters want a new government" 

A child in the 1964 Disney musical, “Mary Poppins”, is an unlikely hero for today’s angry Spanish youth. But his face features on some of the thousands of posters pinned to the walls of Madrid’s central Puerta del Sol square, where protesters have been camped out for almost two weeks. The reason? He demanded his tuppence back from the Dawes Tomes Mousley Grubbs Fidelity Fiduciary Bank, and started a run.

As Spain’s ruling Socialists reeled from a ten-percentage-point defeat at the hands of the conservative People’s Party (PP) in municipal and regional elections on May 22nd—the party’s worst-ever result—some found explanations among the tented demonstrators in Madrid and dozens of other Spanish cities. It is not that the protesters—an ill-assorted mix of anti-capitalists, anarchists and pragmatists bothered about corruption and electoral imbalances—changed voters’ minds. It is that they, and people like them, might normally have voted for left-wing parties. On May 22nd the Socialists lost 1.5m, or one in five, of their votes. Yet the communist-led United Left coalition picked up only 210,000. Likewise, Mariano Rajoy, the PP’s leader, focused his party’s election campaign on the economy and jobs, Spain’s two main concerns, but the PP gathered only 560,000 of the spare votes. Its victory was due chiefly to disillusion with the left, not great advances on the right.

Still, this was an historic drubbing. It is best measured by the record number of regional governments and city halls won by the PP. The party will now run between nine and 11 of Spain’s 17 regional governments, and have an important say in several more. The Socialists are left in control of just Extremadura and two regions that did not vote—Andalusia and the Basque country. But all of Andalusia’s provincial capitals, including traditionally Socialist Seville, are now in PP hands.

A general election must be held by the end of next March. José Luis Rodríguez Zapatero, the Socialist prime minister, announced in April that he would not stand again, hoping, probably vainly, to save his party by acting as a lightning-rod for voter fury. Few now doubt that Mr Rajoy, on his third try, will move into the prime minister’s Moncloa Palace. The question is whether he will land the holy grail of Spanish politics: a parliamentary majority. If repeated, the PP’s ten-point lead over the Socialists on May 22nd should do—just. Anything less threatens to leave Mr Rajoy without a mandate for the reforms Spain badly needs.

Mr Zapatero’s popularity has proved inversely proportional to the wisdom of his decision-making. For two years he denied that Spain was in serious financial trouble. His support fell only slightly, despite recession and galloping unemployment. But last May, as contagion spread across the euro zone’s periphery, he executed a U-turn, embracing austerity and, to a lesser degree, reform. His ratings plunged.

Now the Socialists must choose a replacement for him. A bitter fratricidal battle is looming, with calls for an emergency party conference to remove him as secretary-general. If he loses control of his party, Mr Zapatero might be dumped as prime minister, or even have to call an early election, as the PP has urged. A party meeting on May 28th was due to set the course. Alfredo Pérez Rubalcaba, the deputy prime minister, and Carme Chacón, the young defence minister, are the front-runners to replace Mr Zapatero. In policy terms neither represents a huge change.

As his party grows more uneasy, Mr Zapatero is sticking to an austerity path that aims to reduce Spain’s budget deficit from 11.1% of GDP in 2009 to 4.4% by the end of next year. The OECD, a think-tank, says he is on target. The political cost is becoming apparent. But if the Socialists think left-leaning voters abandoned them only because of spending cuts, reduced civil-service pay and pension reform, they should study the demographics of the Puerta del Sol’s unhappy campers.

The protesters are mostly students. “Most live with their parents. Their problem is the lack of a future,” says Ignacio Sánchez-Cuenca of Madrid’s Juan March Foundation, a research body. Spain’s already-startling 21% unemployment rate rises to 45% among the young. Growth, at just 0.8% over the past year, remains sluggish. A decade-long bonanza of private borrowing, followed by a spurt in public borrowing when the crisis struck, has left a heavy debt burden. Discharging it may depress growth for years. The Economist’s May poll of forecasters predicts growth this year of just 0.6%, followed by 1.1% in 2012. That will create few jobs.

Provisional economic figures released earlier in May contain some worrying details. A surprise upturn in public-sector spending—which increased by 1.1% in the first quarter of 2011 after four quarterly declines—raises questions about decentralised Spain’s ability to cut its way to fiscal health. Ángel Laborda of Funcas, a savings-banks body, says regional governments and town halls may have been using this year’s budget to pay costs from 2010. That implies a hidden extra deficit.

Many of these administrations are now in the PP’s hands. Thorough scrutiny should reveal the true state of the books. The PP now has a good chance to show voters how it would run public finances. So far, its record is mixed. The Madrid region, long a PP bastion, has the lowest deficit of Spain’s 17 regions. But PP-governed Murcia is one of the worst performers.

Markets did not celebrate the PP’s win. Bond yields rose and stocks fell, stoking fears that Spain’s attempt to “decouple” itself from the problems of other peripheral euro-zone countries may be in trouble. Mr Rajoy has criticised Mr Zapatero’s pension reform without offering an alternative. If he wants to take control of a country that is not in crisis he must become clearer about his plans for government.

Barack Obama mildly pleased some Arabs, annoyed a lot of Israelis and has yet to bring the prospect of Middle East peace any closer

It Was a tricky few days for Barack Obama in his latest bid to please the Arab world in general and, more specifically, to break the logjam between Palestinians and Israelis. By contrast, Israel’s prime minister, Benyamin Netanyahu, after frosty talks in the White House and rapturously received speeches to Congress and to the most powerful of America’s pro-Israel lobbies, must have chuckled at having once again—at least in the short run—fended off an American president seeking to prod him more brusquely than usual down the road to compromise with the Palestinians.

In the end, after much brouhaha and hyperbole, there were no real winners: no sign that negotiations between Israel and the Palestinians would resume; no hint of flexibility from Mr Netanyahu, despite his declared readiness to make “painful compromises” in the interest of peace; no expectation that the Palestinians would talk to Mr Netanyahu under present circumstances; no promises that they would put off their quest for recognition of statehood at the UN General Assembly in September; only tepid praise from the Palestinians for Mr Obama’s statements that antagonised Mr Netanyahu; and, across the Arab world, in European capitals, as well as in doveish circles in Israel itself, general condemnation of the Israeli leader for his cocking a snook at Mr Obama.

In any event Mr Obama’s own speech at the State Department on May 19th was an awkward mixture. Most of it dwelt on the Arab upheavals rather than the Israel-Palestinian tangle. It was the president’s first big statement on the Middle East since his acclaimed speech in Cairo two years ago, when he persuaded many Arabs and Muslims that he was genuinely determined to open a new chapter of friendship after years of toxic mistrust, failed military interventions and stalled efforts to make peace between Israel and Palestine.

This time Mr Obama sought to place America on the side of the reformers, putting democratic values above alliances with dictators. He promised a dollop of cash to help countries such as Tunisia and Egypt along the road to freedom. He reassured the Libyan opposition fighting to overthrow Colonel Muammar Qaddafi that he backed them. He took a swipe at his Bahraini ally, which hosts the American fifth fleet, urging dialogue with protesters rather than repression. He told Yemen’s embattled president to quit. And he asked Syria’s president to “lead that transition [to democracy] or get out of the way.” Mr Obama was notably silent about Saudi Arabia, as though unable to chide so vital an ally for its patent lack of reforming zeal.

But all this was drowned out by what he said about Israel-Palestine, in particular when he told Mr Netanyahu that “the borders of Israel and Palestine should be based on the 1967 lines with mutually agreed swaps”. The president also advocated first tackling the borders issue and questions of security, such as the demilitarisation of a future Palestinian state, while leaving the hitherto intractable issues of Jerusalem and Palestinian refugees until later. He also said that the recent reconciliation accord between the Palestinians’ two main factions “raises profound and legitimate questions for Israel”, since the radical Islamist movement Hamas has neither disavowed violence nor agreed to recognise Israel. But he left a possibility for the more moderate Fatah faction to persuade Hamas to change its mind.

Mr Obama’s reference to 1967 seemed to catch Mr Netanyahu on the raw. In fact, previous presidents have mediated on the assumption that any agreed border would roughly follow the pre-1967 one. Bill Clinton’s “parameters” of 2000 suggest that a Palestinian state would encompass 94-96% of the West Bank, with additional compensating land swaps of 1-3%. But no American president had explicitly endorsed the 1967 line before.

Mr Obama had barely finished his speech before Mr Netanyahu, about to take off for Washington, issued a furious statement, widely and promptly echoed across the American spectrum. The 1967 border, he said, was “indefensible”; Israel at its narrowest point, pre-1967, was only “nine miles wide”. Moreover, in contrast to Mr Obama’s proposal that Israeli forces withdrew from the West Bank, he insisted they would remain indefinitely in the Jordan Valley, on the eastern border with Jordan.

A few days later, at a conference hosted by the American Israel Public Affairs Committee, better known as AIPAC, Mr Obama sought to soften his 1967 statement. He had not said, he explained, that the border would be the same as before 1967. Because of those swaps, Israel and Palestine would “negotiate a border that is different than the one that existed on June 4th, 1967”. The 1967 line was only a starting point.

Mr Netanyahu later sought to sound a shade more emollient. He would be generous in giving the Palestinians space for a state on the West Bank, though by implication nothing like as ample as suggested by Mr Clinton or even by the Israeli prime minister’s two predecessors. Most of the settlers there and in Jerusalem, whom he numbered at 650,000, would be on the Israeli side of an adjusted border; an indeterminate number of Jewish settlements in “Samaria and Judaea”, his preferred biblical name for the West Bank, would “end up beyond Israel’s borders”—and would therefore, by implication, have to be removed. But Jerusalem would be the undivided capital of Israel, which the Palestinians must recognise as a specifically Jewish state as a precondition for any deal. In other words, if Mr Netanyahu stuck to his verbal guns, a deal with even the most malleable Palestinians, let alone with a unity government including Hamas, would be virtually inconceivable.

Why did Mr Obama risk stirring such bad blood between his administration and Israel’s, to no apparent diplomatic gain and at a time when the pro-Israeli lobby in America, already in pre-election mode, still wields so much clout? Perhaps, in frustration at his failure to advance the peace process, he wanted to put down a marker, warning Mr Netanyahu that he would not tolerate his continuing refusal to give ground on a whole range of issues. Mr Netanyahu’s unwillingness last September to extend a freeze on expanding Jewish settlements in the West Bank prompted the Palestinians to pull out of talks only three weeks after they had resumed, to Mr Obama’s intense chagrin. “He really told him, ‘If you give me nothing to work with, America will keep trying to defend you but it will not be enough,’” says Daniel Levy, an Anglo-Israeli former negotiator who works for the New America Foundation, a peacemaking outfit in Washington, DC.

Rarely has the outlook seemed so bleak. On May 13th Mr Obama’s envoy, George Mitchell, resigned in despair. Some say Mr Obama should still, whatever Mr Netanyahu’s objections, lay out a detailed plan of his own and visit Israel to promote it. Perhaps he should suggest indirect talks to explore fresh negotiating possibilities. But no American president seeking re-election can contemplate putting real pressure on Israel—withholding favours at the UN, for instance, or reducing the supply of arms and aid. As things stand, even those who think Mr Obama’s vision of an Israeli-Palestinian compromise is right fear the president may have picked a fight that, in the short run, he was unlikely to win.