May 23, 2011
Dominique Strauss-Kahn’s economic philosophy suited Ireland’s situation, so his departure is not good news for us
Last Monday, having trashed the pitch that the England football team train on ahead of internationals with a display of over-the-hill five-a-side, I headed back into Google’s Zeitgeist conference in the salubrious surrounding of The Grove in Hertfordshire.
Zeitgeist is like a younger, techier version of Davos. It is Google’s answer to the TED talks. Many of the great and good – and, more to the point, the coming great and good, the next generation -were there.
Of course, given how many of these people have access to the most powerful people in the world and are familiar with the world of high finance, emerging businesses and power politics, the conversation last Monday morning revolved around Dominique Strauss-Kahn.
I was speaking on a panel about the future of the euro with Professor Joe Stiglitz, a Nobel Prize winner for economics. Stiglitz is no stranger to Ireland. In fact, the first time I met him was, believe it or not, in the back of a small republican bar on Cardinal O’Fiaich Square in Crossmaglen in the winter of 1992.What a young Irish economist and a Nobel laureate were doing downing pints in south Armagh during the Troubles as a British army helicopter droned overhead is another story.
But the point is that Stiglitz knows Ireland and, as the former chief economist of the World Bank, also knows and understands the International Monetary Fund (IMF).
As one of the IMF’s main critics and a consistent campaigner for the eradication of the Washington-Wall Street axis — where by Wall Street exerts too much pressure on the US government – Stiglitz is a man at the centre of the debate.
After the panel discussion, we chatted about the economic implications of Strauss-Kahn’s dramatic fall from grace.
Stiglitz was absolutely convinced that Strauss-Kahn was one of the few senior people who stood up for Ireland.
He told me that Strauss-Kahn was all for burning the bondholders and giving the Irish economy a chance to survive as a real breathing economic entity, rather than a large debt-servicing agency. Comments last Friday from the IMF, criticising the European approach to tackling the Irish crisis, suggested that this was indeed the case – the IMF realises that Europe’s periphery needs a break.
Without the help of Strauss-Kahn at the IMF, which is now clearly at loggerheads with the ECB over the future of Ireland, Greece and Portugal, the peripheral countries will sink further. This is an analysis that you will know I agree with.
The IMF realises that you can’t get blood out of a stone. It also understands that there is trouble ahead if your debt-to-GDP ratio is rising towards 150 per cent and the rate of interest you are paying means some 9 per cent of GDP in debt repayments alone is leaving the economy each year.
That is before you try to cut government expenditure. So it can’t work, not so much because the debt is so big, but because the interest rate is so high.
For example, Japan has been running a debt-to-GDP ratio of 200 per cent for ages, but because it is only paying 2 per cent for the pleasure of this borrowing – and is internally financing this – the drain on the national economy is bearable.
Strauss-Kahn realised that the case of Europe’s peripheral countries was different to Japan’s – and the IMF’s position has changed accordingly. Strauss-Kahn – a socialist – also saw no great need to protects banks and penalise workers.
Thus the IMF has been more forceful in applying the rules of capitalism to Europe’s debt problem, believing that those that lent to the banks on the periphery should pay.
The ECB’s position is quite the opposite. The Central Bank has turned the EU into a loan shark that is shafting members of its own family by borrowing from the markets at 3 per cent, lending at 6 per cent to the likes of us and pocketing the difference. This is hardly the behaviour of solidarity.
Last December, Strauss-Kahn urged EU finance ministers at a meeting in Brussels to enlarge their â‚¬750 billion bailout fund and end their ‘piecemeal’ approach to the sovereign debt crisis in Europe.
‘‘The eurozone has to provide a comprehensive solution to this problem,” Strauss-Kahn said. This precise point was reiterated in IMF comments last Friday about the Irish bailout.
Obviously this is saying that the current solution is not working and is not likely to work. Of course, Herman Van Rompuy, president of the European Council, came back last December with: ‘‘There is no need to increase the means available. There is no problem at all.”
There was a problem then – and there is a problem now. The problem is the same: EU politicians are unwilling to face up to the size of the problems in the eurozone – they want to see the world as they would like it to be, rather than how it is.
In Strauss-Kahn, Ireland had someone who was able to see two things: the size of the problem and the inadequacy of the solution offered. For Ireland, this matters. With someone at his level being able to see the size of the challenge facing us and being there to suggest realistic solutions, we might have been able to get somewhere in renegotiating the terms of the Irish loan. Without Strauss-Kahn, Ireland is left to the realpolitik of the forthcoming German and French elections.
Strauss-Kahn was leader of the IMF since 2007 and managed to change the focus of the organisation away from the neo-liberal values it has traditionally held.
On May 5, Stiglitz wrote an article noting that the IMF had realised that a nation’s economic wellbeing depends on social equality and justice. He called Strauss-Kahn a ‘‘sagacious leader of the IMF’’ and said: ‘‘We can only hope that governments and financial markets heed his words.”
Speaking at the Brookings Institute last month, Strauss-Kahn said: ‘‘Ultimately, employment and equity are the building blocks of economic stability and prosperity, of political stability and peace. This goes to the heart of the IMF’s mandate. It must be placed at the heart of the policy agenda.”
These sound like the kind of policies that Ireland needs right now – not the blinkered bondholder bailouts that Europe will continue to force on us. Whatever happened in that New York hotel room, the IMF’s loss of Strauss-Kahn is also Ireland’s loss. But his influence will remain.
The next candidate may well be from an emerging market. We should support that person. The last thing we should do is throw our weight behind Christine Lagarde of France, who has urged the adoption by the EU of a single candidate – namely her. She is not a person who has Ireland’s interests at heart.
Maybe after the queen’s visit, we should adopt the British adage, which is that, in foreign affairs, countries have no friends, simply interests.
Lagarde as head of the IMF would not be in our interest.
You can watch the panel discussion mentioned above on the future of the euro here.