By Liz Alderman
As predicted just over a month ago on these pages (March 23, 2011), French Finance Minister Christine Lagarde has become the first woman to be appointed to the helm of the International Monetary Fund (IMF), taking on one of the most powerful positions in global finance as a worsening crisis in Greece threatens the euro currency union and rattles financial markets worldwide. Mrs Lagarde’s victory was sealed when the U.S. Treasury secretary Timothy F. Geithner said the United States would endorse her over the Mexican central bank governor Agustín Carstens — her only competitor for the job. “Minister Lagarde’s exceptional talent and broad experience will provide invaluable leadership for this indispensable institution at a critical time for the global economy,” Mr. Geithner said in a statement.
In a statement, Ms. Lagarde said she would strive to ensure the IMF remained “relevant, responsive, effective, and legitimate, to achieve stronger and sustainable growth, macroeconomic stability, and a better future for all.” As a top official of one of Europe’s most powerful economies, Ms. Lagarde has been at the forefront of efforts to contain the European debt crisis, which led Greece, and then Ireland and Portugal, to seek bailouts to help them pay their huge sovereign debts.
A year after Greece secured a rescue package of €110 billion, or $140 billion at current exchange rates, the country’s debt problems have resurfaced with a vengeance, posing profound challenges to the IMF, the European Union and the European Central Bank as they try to contain the crisis. That is no easy task. Global markets have been whipsawed in recent weeks as fears mount that Greece could default on its debts, despite aid from the I.M.F. and its European partners. Many worry about a Lehman Brothers-style chain reaction in financial markets that could break up the euro zone and spark a new crisis at banks and insurance companies in Europe that could spread to some American institutions.
Representatives from emerging markets fought to claim the IMF leadership from Europe, which has produced every managing director since the fund’s inception more than 60 years ago. Mr. Carstens argued that Europe needed someone who would bring a fresh pair of eyes to the crisis. But Ms. Lagarde persuaded her backers that the IMF. needed a European at the helm to address the Continent’s deepening debt problems.
Ms. Lagarde was initially opposed to getting the IMF involved in Greece’s rescue, seeing it as a problem that Europe’s politicians and policy makers needed to resolve. When the IMF entered the scene last year, Ms. Lagarde took a hard line on Greece, at one point threatening to withdraw financial aid if the country did not respect its engagements to cut spending and raise revenue.