bjbjLULU /$}M MARGARET WARNER: I sat down with Christine Lagarde this afternoon, three
weeks into her tenure at the IMF's Washington headquarters in Washington. Madam Managing
Director, thank you so much for joining us. CHRISTINE LAGARDE, International Monetary
Fund: My pleasure. MARGARET WARNER: As we sit here right now, the crisis over the U.S.
debt limit and possibility of default still isn t resolved. You ve talked about a possible
spillover. What are the consequences globally to the global financial system if five days
from now there still isn t a deal? CHRISTINE LAGARDE: Well, you are right that there is
quite a lot of concern out there. The global economy is clearly highly dependent on the
U.S. economy, because the U.S. economy is the first in the world and it s a major s
a major power in many respects. So to have the lead economy uncertain about its debt
ceiling is quite worrisome. And if you were to take it further, clearly there would be
there would be consequences in the rest of the world, not just in the United States.
For example, the dollar has always enjoyed what Giscard d'Estaing, the former French
president many years ago, called the exorbitant privilege of the dollar, because it was the
currency the reserve currency that most central banks had. Well, clearly, there was a dent
in this exorbitant privilege and the confidence that most people have towards the dollar.
It would probably entail a decline of the dollar relative to other currencies, and probably
doubts in the mind of those people who reserve currencies as to whether the dollar is effectively
the ultimate and prime currency of reserve. MARGARET WARNER: But do you think it could
trigger the sort of chain reaction that say the Lehman Brothers collapse did in 08? Is
it that potentially dire? CHRISTINE LAGARDE: It s difficult to predict. And if it if it
was to happen because there are so many counterparties, for instance, that are invested in U.S. treasury
bonds then it would be very, very difficult and very traumatic, I would say. So my dear
hope is that political leaders will have the courage and the humility as well to overcome
political sensitivity and concerns and doctrines, which are perfectly legitimate, for the sake
of the entire country and for the sake of the global economy. MARGARET WARNER: So is
that what s missing here? I mean, as a European coming here to Washington you ve dealt with
previous administrations do you think that s what s lacking here is political courage?
CHRISTINE LAGARDE: Political courage is required. And I m not m not suggesting that it is lacking,
but it has to be demonstrated in moments of crisis. I was last week in Brussels, and there
was a moment of courage and solidarity amongst the European leaders, members of the eurozone
area. It comes in times in crisis. And when it does, it s quite extraordinary. MARGARET
WARNER: As long as finally people feel the crisis. CHRISTINE LAGARDE: It crises are very,
very good change agents and change drivers, actually. MARGARET WARNER: Even if it gives
everyone heart attacks. Well, let s look at Europe. CHRISTINE LAGARDE: Well, you have
to change just before, you know, there is the heart attack. MARGARET WARNER: Just before
the heart attack. Now, in Europe, as you said, there was this rescue new rescue plan for
Greece, how confident are you that that is going to be enough to stem the kind of contagion
that you re all re all fearful of, from one European country to another in terms of debt?
CHRISTINE LAGARDE: What happened on Thursday was a collective determination to, number
one, do what it takes to rescue Greece and to rescue it for the long-term. There was
this very striking commitment made by the political leaders that they would continue
to support the country and any country under a program until that country regained access
to market, provided that that country would perform and deliver under the program. That
s a rare commitment, one that was sort of implied but one that they actually all signed
up to, which is really very important. The second thing they did, which was also critical,
was to actually agree that this European financial stability fund that was put together a year
ago would be flexible and could be used to buy on the secondary market, in case a country
and that goes to your contagion point in case a country is at risk and needs financial support
without really being a country in a situation of being bailed out. So I think those two
components, added to which they also agreed that the private sector would have to contribute,
is really game-changer for Europe if they implement. MARGARET WARNER: If they implement.
But right now, the markets don t seem entirely convinced. I mean, the Spanish and Italian
bonds, the yields are going up, as you know, and the cost of insuring them is going up.
CHRISTINE LAGARDE: Markets are always very sensitive to uncertainty. I think what we
re seeing at the moment is this question mark about implementation, which is why I think
it is so critically important, not just for Greece but for the euro member countries,
to actually deliver on the commitment that the political leaders signed up to on Thursday.
MARGARET WARNER: Do you think that the Eurozone itself is at stake here, that this kind of
commitment where there s really a very weak economy, nowhere in the league of Germany
and France that in this kind of global, financial situation, it really may be difficult if not
impossible to sustain? CHRISTINE LAGARDE: You re right, which is why it was so important
for them to actually say and write and sign up to: we will sustain, we will support, we
will be there ; it s also a demonstration that the large euro area members such as Germany,
such as France, for instance, such as the Netherlands are going to back up the rest
of the zone and that they want to stand by the construction this extraordinary construction
of the monetary zone composed of 17 member states. MARGARET WARNER: Whether it s in the
streets of Europe with the protests you ve had or here in the halls of Congress, there
seems to be a growing public and political backlash to having governments or taxpayer-funded
institutions like the IMF, bailing out essentially, ultimately, private investors. How concerned
are you that this kind of public discontent could really unravel the consensus that s
underpinned, whether it s the EU or the U.S. or the IMF, for six decades? CHRISTINE LAGARDE:
Everybody needs to be a party to that and clearly the people have to see that past the
period of fiscal consolidation, that other people call austerity, there will be a path
for growth, there will be a path for jobs. It s about making sure that the economic players
will be able to create, will be able to employ, will be able to invest in research and development.
That s what we aim at. MARGARET WARNER: And so as you take this job, you think about the
IMF for much of the postwar, the past decades, the three big economies that have supported
it U.S., Europe and Japan are all in serious trouble. Do you think that collectively there
is enough political will, but also financial wherewithal, to actually weather this without
slipping back into a global further global recession? CHRISTINE LAGARDE: Well, we certainly
don t want a global recession. That s for sure. you know, it s a turn of the wheel.
We had the Latin American countries in difficulty in the 80s; we had the Asian crisis in the
90s. At the moment, clearly the financial crisis that started in 2000 late 2008, we
all remember, has had sustainable effects and consequences in all economies but particularly
the advanced economies because of the financial contagion. So lots of jobs have been lost,
but countries are in the process of rebuilding. It is going to take time, no doubt about it,
and we need to be collectively concerned that we are aiming in the right direction and making
sure that the less privileged, the most in difficulties m thinking of, you know, countries
like those in the Horn of Africa, at the moment, for instance continue to have the right level
of support. So it s a balancing act for me here at the IMF as well, making sure that
we focus on stability, but that we pay attention to those are most in need. MARGARET WARNER:
Madam Managing Director, thank you so much. CHRISTINE LAGARDE: Thank you. urn:schemas-microsoft-com:office:smarttags
State urn:schemas-microsoft-com:office:smarttags City urn:schemas-microsoft-com:office:smarttags
country-region urn:schemas-microsoft-com:office:smarttags place I sat down with Christine Lagarde this
afternoon, three weeks into her tenure at the IMF's Washington headquarters in Washington
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