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The Euro Zone Crisis Has Increased I.M.F.’s Power

Published: April 19, 2013
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Source: NY Times

The I.M.F. has more say over crisis management than many euro zone members, and Ms. Lagarde has become a quasi head of state, whose views carry more weight than those of many elected leaders. Indeed, without the I.M.F.’s money and advice, the euro zone might have fallen apart by now.

Because she has Mr. Schäuble’s ear and respect, Ms. Lagarde has also played an important role overcoming German reluctance to accept proposals intended to strengthen the euro zone, like a centralized bank supervisor.

Recently, there have been signs that Ms. Lagarde is seeking to nudge Mr. Schäuble and the German leadership to moderate their views on an issue that is central to the crisis: the degree of austerity that should be imposed on countries like Greece and Portugal.

For most of the last three years, the I.M.F. and Germany have insisted that aid recipients must cut government spending and raise taxes. But lately Ms. Lagarde has been arguing that too much austerity could be counterproductive.

A shift by the I.M.F. would transform the debate in Europe. But the fact that the organization is so tangled in European affairs is controversial both inside and outside the Continent, and could be a source of discord as the I.M.F. and World Bank hold their spring meetings in Washington. The policy-making bodies of both organizations meet on Saturday, while related conferences and other events began on Monday and continue through Sunday.

Poorer nations that contribute to the I.M.F.’s financing have grumbled about having to prop up rich Europe. More than half of the I.M.F.’s lending goes to the euro zone, from virtually nothing a few years ago. The I.M.F. has contributed about a third of the money used to rescue countries like Portugal, Ireland and Greece, with the rest coming from other euro zone countries.


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