:00:05. > :00:15.Many others were rebel fighters. Those are the latest headlines. It
:00:15. > :00:17.
:00:17. > :00:24.Welcome to a special edition of HARDtalk from the headquarters of
:00:24. > :00:29.the International Monetary Fund in Washington, DC. The IMF it that the
:00:29. > :00:32.centre of efforts to revitalise the financial world economy. Today I am
:00:32. > :00:37.joined by an audience of delegates to the annual spring meetings of
:00:37. > :00:43.the IMF and by my special guest, the managing director of the IMF,
:00:43. > :00:50.Christine Lagarde. She says her task is to move the world economy
:00:50. > :00:56.from a fragmented three-speed position to a full speed world
:00:56. > :01:06.economy. It is a neat phrase. But how is it to be done? Please give a
:01:06. > :01:12.
:01:12. > :01:19.warm welcome to Christine Lagarde. Christine Lagarde, let us start
:01:19. > :01:25.with a broad overview across the world economy today. Do you feel a
:01:25. > :01:29.sense of deep uncertainty still hangs over the economy? There is
:01:29. > :01:35.still uncertainty, but there is probably less uncertainty than we
:01:35. > :01:39.had a few months back. As you mentioned, we have this three-speed
:01:39. > :01:44.recovery underway. It is essentially the emerging market
:01:44. > :01:48.economies and the developing countries, which are moving not
:01:48. > :01:53.full speed ahead but quite fast. They have sustained the crisis
:01:53. > :01:56.relatively well under coming out of it reasonably solid. We have a
:01:56. > :01:59.second group of countries, essentially the United States of
:01:59. > :02:03.America and a few others like Sweden and Switzerland that have
:02:03. > :02:10.done quite a lot of reforms, particularly in the financial
:02:10. > :02:16.sector. But they have real issues, particularly the US with fiscal
:02:16. > :02:22.consolidation. Are they going too fast now? Yes. Are they going
:02:22. > :02:29.steadily for the future? No. That is an issue. That sounds very
:02:29. > :02:34.serious. Do not want the good one? I do, but you're not happy with the
:02:34. > :02:38.economic management of the United States? We believe the fiscal
:02:39. > :02:43.policies in place are not positioned correctly. We believe at
:02:43. > :02:52.the moment they are doing too much of it. They are contracting by
:02:52. > :02:56.about 1.8%. That is the size of grizzly forecast for them. They are
:02:56. > :03:00.not telling us what they plan for the medium term. Yet we know that
:03:00. > :03:05.they have massive entitlement weight on the economy that would
:03:05. > :03:10.require them to decide for the medium term but they are planning.
:03:10. > :03:16.It is not balanced as it should be. I hope we can get back to that. I
:03:16. > :03:21.rudely interrupted the third speed. I suspect that when we get to Brit,
:03:21. > :03:25.it is the most problematic area of the world economy, we are talking
:03:26. > :03:33.about Europe. We are talking about Europe, particularly the eurozone,
:03:33. > :03:38.and Japan. It is in a place of its own for all sorts of reasons. It is
:03:38. > :03:45.Europe and the eurozone in particular that we see in very mild
:03:45. > :03:49.recession for 2013. It is not picking up fast. That is the
:03:49. > :03:54.slowest of the three groups. It is the one that needs to pursue
:03:54. > :03:59.significant reforms as they have begun. I think we have to focus
:03:59. > :04:03.this conversation on Europe. I want to quote to some words from your
:04:03. > :04:08.chief economist, who said the world economy is as weak as its weakest
:04:08. > :04:14.link. Just to be clear about it, you see Europe as the weakest link.
:04:14. > :04:18.Talking in general terms, yes. This is the weakest link. This point
:04:18. > :04:25.about week as the weakest link asked to do with how interconnected
:04:25. > :04:31.we all are. If one player is down and one growth is low, it is going
:04:31. > :04:36.to have an impact. Let us have a look at the strategy that the Rose
:04:36. > :04:41.Byrne and other governments in Europe are looking at. Let us talk
:04:41. > :04:51.about austerity. It has become the focus of so much debate and it
:04:51. > :04:53.
:04:53. > :04:58.involves the IMF. His austerity going too far? Two points here.
:04:58. > :05:02.Posterity on its own, fiscal consolidation, the reduction of
:05:02. > :05:08.deficits, trying to change the trajectory of debt to make it go
:05:08. > :05:12.down rather than up on its own would not be sufficient. In the
:05:12. > :05:17.same vein, monetary policy alone would not be sufficient. Structural
:05:17. > :05:22.reforms on its own would not be sufficient. You need all of them
:05:22. > :05:28.together. What I am getting is that I am seen signs that the IMF
:05:28. > :05:36.approach to austerity is evolving. A was coming to that. It is because
:05:36. > :05:42.the conditions in Europe are in some ways deteriorating. Yes?
:05:42. > :05:47.coming to that. We are coming out, very gradually, of the worst
:05:47. > :05:52.possible recession since the Second World War. It is a very complicated
:05:52. > :05:56.and complex crisis. He to live in Spain, Greece, in a host of
:05:56. > :06:01.different countries in Europe, you cannot feel you're coming out of a
:06:01. > :06:10.recession at all. You are not yet coming out of recession, but I want
:06:10. > :06:14.to narrow down to those countries. Very complex landscape, financial
:06:14. > :06:19.crisis, real estate crisis. The discussion between the real economy
:06:19. > :06:27.and the markets. In that context, fiscal consolidation had to take
:06:27. > :06:32.place. Those deficits had to be reduced. The question that we ask
:06:32. > :06:41.now and has to be asked is, is it going too fast? Is it going to deep
:06:41. > :06:47.and is it being efficient? For some countries, it has to slow down. The
:06:47. > :06:52.pace was too fast. They have room to manoeuvre and let growth pick up
:06:52. > :06:59.a little bit. I want to mention one other country where it is
:06:59. > :07:05.controversial, the United Kingdom. Really? Yes. Your own chief
:07:05. > :07:09.economist is now very specific. He says that it may be time to adjust
:07:09. > :07:12.the original fiscal consolidation plan of George Osborne, the
:07:12. > :07:16.Chancellor of the Exchequer in the United Kingdom. He says George
:07:16. > :07:23.Osborne is playing with fire because conditions have
:07:23. > :07:26.deteriorated but the policy has not changed. Will you back those words?
:07:26. > :07:31.I think what is important is the collective wisdom we have tried to
:07:31. > :07:39.put together. The Department is clearly a very important factor in
:07:39. > :07:45.our thinking. When we say, collectively, that it may be time,
:07:45. > :07:49.it should be considered, we certainly have a collective view.
:07:49. > :07:58.This is cogent, isn't it? You and others have been delivering a
:07:58. > :08:04.message for some time that a reassessment is needed based on
:08:04. > :08:09.conditions in the wider economy. One can look at all the figures, UK
:08:09. > :08:15.downgraded yet again, the economic medicine is not working at the
:08:15. > :08:22.moment. Is it not time for you to say, enough of this review and
:08:22. > :08:28.reassessment Procedure. Now you need to shift course. First of all,
:08:28. > :08:35.I do not think that we have shifted. For the past couple of years we
:08:35. > :08:40.have been saying that this is a very strong programme. One has to
:08:40. > :08:44.watch what is the growth, what is the environment, what are the
:08:44. > :08:52.constraints. We have consistently set out. It is not a new view that
:08:52. > :08:57.we would be coming up with. I am sure you have seen this. The
:08:57. > :09:06.Financial Times is now talking about a de stop growing between the
:09:06. > :09:12.IMF and the British government. -- dust up. They say that they simply
:09:12. > :09:20.will not do it. They are wrong. did not know about this strange
:09:20. > :09:25.boy's language. This is not how we operate. The point is there that
:09:25. > :09:32.you at the IMF and the British government now seem to have a
:09:32. > :09:36.serious difference on this key issue of how to manage fiscal
:09:36. > :09:42.consolidation and at the same time revive an economy and get growth
:09:42. > :09:49.going. We have always had the same line. Countries that have a long
:09:49. > :09:55.way to go, and Britain came from an 11% deficit, have to conduct fiscal
:09:55. > :10:01.consolidation consistently. Giving a medium-term objective and giving
:10:01. > :10:06.reliability and confidence that these policies will be put in place.
:10:06. > :10:10.The second point, we have also consistently said that clearly one
:10:10. > :10:16.has to take into account the environment and the growth that
:10:16. > :10:21.applies to the country. The UK has had some positive growth. It is
:10:21. > :10:27.forecasting some positive growth next year. With these parameters in
:10:27. > :10:33.mind, which are exactly what the IMF has an institution together
:10:33. > :10:39.with its research department think, we do not do bus stop, we do
:10:39. > :10:49.dialogue with authorities. -- dust up. We are going to sit down before
:10:49. > :10:50.
:10:50. > :10:54.the review and explore a why this is working. Our export working? Is
:10:54. > :10:59.the funding for the lending programme that is very put in place
:10:59. > :11:03.well working and if not why not? We are going to do all that and we're
:11:03. > :11:11.going to do it in a very even fashion. Not been prejudiced
:11:11. > :11:16.towards one or the other. Not being supportive of one or the other. We
:11:16. > :11:22.want to do a good job and give the country a good chance to explain
:11:22. > :11:28.why they are doing this and why we are recommending this or that.
:11:28. > :11:33.you do want to see more flexibility from the United Kingdom? We are
:11:33. > :11:38.saying that with this medium term strong anchoring of fiscal
:11:38. > :11:44.consolidation, the pace has to be adjusted under the circumstances.
:11:44. > :11:48.Given the weak growth we have observed lately because of reduced
:11:48. > :11:53.demand addressed to the economy, now might be the time to consider.
:11:53. > :12:01.But we want to have the dialogue. I do not think it is fair on any of
:12:01. > :12:08.our members, we have 188 of them, to pass a final judgement. The
:12:08. > :12:14.words used to matter. When we say that we may consider, we're opening
:12:14. > :12:20.the door. But now is the dialogue. Let us focus briefly on Cyprus, the
:12:20. > :12:27.most recent eurozone bailout. the most difficult as well. Are you
:12:27. > :12:31.proud of the role the IMF played? You are trying to imply that it was
:12:31. > :12:37.so difficult I cannot say that I'm proud of what we did. Let me tell
:12:37. > :12:40.you something, I am proud of the team that actually put Alice and
:12:40. > :12:46.Alice and Alice, late night days and weekends, trying to help the
:12:46. > :12:51.country that was in such a difficult position and had really
:12:51. > :12:57.delayed the curing of the problem by securing a loan that took them
:12:58. > :13:03.out of the market for a year and a half. Had they done it a bit fovea,
:13:03. > :13:08.it could not have been as complicated. -- earlier. Am I proud
:13:08. > :13:13.of it? I am proud of the teams. They have done as good a job as
:13:13. > :13:20.they could of a very difficult case. I am happy to go into the details.
:13:20. > :13:27.Let us not spend too long on it. But first, you became, the IMF
:13:27. > :13:33.became the party to an initial rescue deal that the Cypriot public
:13:33. > :13:39.absolutely rejected. An initial deal that was going to cost even
:13:39. > :13:44.small bank depositors a significant amount of money. It seemed to break
:13:44. > :13:50.a fundamental trust about the security of small savers and
:13:50. > :14:00.banking deposits. Do you regret that? I regret that we did not
:14:00. > :14:03.explore sufficiently the find, if you will, between members of
:14:03. > :14:11.government and the persons who were negotiating on the health of the
:14:11. > :14:17.country. There would be put down views by the population. Just to
:14:17. > :14:24.remind ourselves, we're talking about less than one million people.
:14:24. > :14:28.0.02 % of the eurozone's GDP. A banking sector eight times the size
:14:28. > :14:38.of the country itself. Massive depositors, including from non-
:14:38. > :14:46.
:14:46. > :14:51.residents. A restructuring of banks You were a party to it, which
:14:51. > :14:57.amounts to... To quote one leading European commentator, it drove a
:14:57. > :15:02.coach and horses through the big idea of banking union, because when
:15:02. > :15:06.it came down to it, the message to Cyprus was - it is your problem. We
:15:06. > :15:10.will offer you some money, but you are going to have to bear the brunt
:15:10. > :15:16.of the pain. We found out after the initial deal it is going to be much
:15:16. > :15:23.more pain. The Cypriots are facing the most unimaginable burden to pay
:15:23. > :15:30.off the price of this rescue deal. Just to remind you, all of the
:15:30. > :15:35.accounts under 100,000 euros are totally protected. Some of the
:15:35. > :15:40.accounts in one bank are going to take a haircut of about 37%, the
:15:40. > :15:46.bigger accounts. The other ones are going to go through it a bad bank,
:15:46. > :15:52.could paint process. Overtime and maturity they will recover some of
:15:52. > :16:02.their money. My take on it, looking at the future, is that this Cyprus
:16:02. > :16:06.case, as small as it was, will hope fully convince the Europeans,
:16:06. > :16:11.particularly the members of the eurozone, that a European banking
:16:11. > :16:15.union is an absolute necessity and has to be put in place in quickly.
:16:15. > :16:19.Had there been a banking union in place, the common superviser who is
:16:19. > :16:24.in charge of not just looking at the big guys, but also supervising
:16:24. > :16:29.the three largest banks in any of the member states, would have also
:16:29. > :16:39.seen that there was something funny about this, particularly the
:16:39. > :16:42.largest banks, growth coming from a relatively small capital. That
:16:42. > :16:47.would have been won. The second one is that the European system would
:16:47. > :16:53.have helped in the rescue package and would have directed what was to
:16:53. > :16:59.be done. A final thought on Europe. You have made the point about
:16:59. > :17:05.banking union being so important to stabilising the eurozone. We don't
:17:05. > :17:09.have a full and proper banking union. One person goes further. He
:17:09. > :17:13.said, in the end, there is no alternative if the euro is to work
:17:13. > :17:18.but to give birth to the missing ingredient - a European Treasury
:17:18. > :17:24.with the power to tax and therefore borrow. In the longer term, is he
:17:24. > :17:32.right? I think he will be gone by then. I might be gone as well. To
:17:32. > :17:36.have that as a goal, if the people of Europe and the leaders of Europe
:17:36. > :17:41.have that political objective to turn the currency union into
:17:41. > :17:46.monetary union, which it is now, into a banking and fiscal union,
:17:46. > :17:50.into a political union, that is where they should go. Your answer
:17:50. > :17:54.was neat and amusing, but it raises another question, if it is so far
:17:54. > :17:58.away and so difficult to achieve, is it the implication that in the
:17:58. > :18:05.interim the eurozone is always going to be unstable and
:18:05. > :18:10.dysfunctional? It just means that I will take my retirement early. It
:18:10. > :18:16.is a complicated structure, there is no question up you have 17
:18:16. > :18:23.member states. 17 flags. 17 national anthems for 17 treasury
:18:23. > :18:27.departments. They are deciding to come together to have consistent
:18:27. > :18:33.fiscal policies and set debt ceilings and so on. Not all of it
:18:33. > :18:39.works, but in times of smooth sailing, the boat is OK. In times
:18:39. > :18:44.of Tempest, then you can see that the mast does not hold as well as
:18:44. > :18:48.it should. That you have to put a little bit of is that and the other
:18:48. > :18:53.around the vessel. That is what is happening at the moment. They need
:18:53. > :18:58.to move faster. Let's move offer of Europe and think of other
:18:58. > :19:03.challenges facing the IMF. I want to talk particularly about one key
:19:03. > :19:13.study. That is Egypt. Egypt is desperate for assistance from the
:19:13. > :19:18.IMF, up to the tune of $5 billion. We sea the economy that is in dire
:19:18. > :19:22.straits. After months of tough and as the Asian, you seem to be a long
:19:22. > :19:29.way from offering that assistance. -- tough negotiation. Is that
:19:29. > :19:32.because the IMF is focused on the eurozone, so it is not lending
:19:32. > :19:38.support to difficult situations like Europe? I can assure you that
:19:38. > :19:42.is not the case. I was in Egypt in August after the appointment of the
:19:42. > :19:45.prime minister. I thought it was a very important statement to make to
:19:45. > :19:49.the Egyptian people and to the Egyptian authorities that we were
:19:49. > :19:54.paying attention, that we wanted to be in a strong and productive
:19:54. > :20:00.dialogue with them. And we were on the verge of concluding a programme
:20:00. > :20:04.in November, 2012, which is by all accounts very fast. I am there in
:20:05. > :20:09.August, the team works hard if and go in the field spending days and
:20:09. > :20:14.nights working with the teams, they put a programme in place, but for
:20:14. > :20:19.political reasons, no criticism of it, but for political reasons the
:20:19. > :20:24.President and the Prime Minister had to pull out tax reforms that
:20:24. > :20:29.they were just about to put to the Parliament. What do we do? We go
:20:29. > :20:35.back. We will return to Egypt. We have had teams on the ground
:20:35. > :20:39.negotiating over and over again. They just came back a few days ago.
:20:39. > :20:44.There is still a way to go before we complete the agreement because
:20:44. > :20:48.two things... People won't know the detail, but to be clear, as I
:20:48. > :20:55.understand it, there is still a lot of discussion about whether the
:20:55. > :21:01.Government is prepared, as you want them to be, to curtail on subsidies
:21:01. > :21:05.for wheat, for fuel, things that the poor in Egypt absolutely depend
:21:05. > :21:12.on. This gets to the heart of how the IMF handles negotiations like
:21:12. > :21:15.this. A Pul?I ? this. A Pul economists said the IMF approach is
:21:15. > :21:20.they call a negotiation, but the fact is all the power is on one
:21:20. > :21:23.side, the IMF's. Many in emerging economies feel that the way you
:21:23. > :21:28.operate is secretive, it lacks transparency and accountability,
:21:29. > :21:34.and it is fundamentally unfair. think it is a fundamentally unfair
:21:34. > :21:39.comment. Seriously. Because everything that we do it is
:21:39. > :21:44.approved by a board representing the 188 members of the institution.
:21:44. > :21:54.It is not as if you have a group of secretive economists corking up
:21:54. > :21:54.
:21:54. > :21:58.their little thing on the side. It is far more complicated. It is a
:21:58. > :22:04.constant dialogue. At the end of the day, it is the programme of the
:22:04. > :22:07.country itself. You remember my point about Cyprus. You need to
:22:07. > :22:10.have political support. That is one of the things we want to have in
:22:10. > :22:14.Egypt, which is why we talk with the government, but we also talk
:22:14. > :22:18.with the opposition. The elections are down the road and in the
:22:18. > :22:22.meantime we have very few people to talk to that will say, yes we want
:22:22. > :22:32.to do that. One point on the subsidies because I think it is a
:22:32. > :22:36.much money spent on subsidies around the world? Two trillion
:22:36. > :22:41.dollars going to subsidy. If you look in the details of who gets the
:22:41. > :22:44.subsidies, it is not so much the poor people. The bulk of the
:22:44. > :22:48.subsidies actually go to people who don't really need it. Those who
:22:49. > :22:53.really need the subsidies, the poor people, get a little chunk of it.
:22:53. > :22:57.What we are saying to Egypt is, we design, make sure that the poor
:22:57. > :23:01.people have what they need by way of cash transfers, by way of
:23:01. > :23:05.special smart cards that give them access to oil because they need
:23:05. > :23:10.that as well, and the rest of it, the rest the ghost to those that
:23:10. > :23:14.are needed, it is OK. There is enormous pressure on you. You have
:23:14. > :23:22.been described as one of the most powerful women in the world economy,
:23:22. > :23:25.alongside Angela Merkel, and if you face a real personal difficulty.
:23:25. > :23:28.Magistrates want to question you about allegations of
:23:28. > :23:33.misappropriation of public funds and aiding and abetting
:23:33. > :23:37.falsification. You have already seen your apartment search by the
:23:37. > :23:44.authorities. This is making it difficult for you to do your job,
:23:44. > :23:50.is it not? No, it's not. I am trying to focus 100% of my energy,
:23:50. > :23:53.my enthusiasm, my smile on the job that I have to do. I had the huge
:23:53. > :23:57.privilege of being supported by a team which is not looking at those
:23:57. > :24:00.things that you just mentioned. They exist, I will deal of it and I
:24:00. > :24:06.will do what I have to do. If you are placed under formal
:24:06. > :24:12.investigation, would your position still be tenable? At the IMF we do
:24:12. > :24:16.not speculate on personal evolution of things. At the moment I am
:24:16. > :24:21.telling you this - I am focusing on what I have to do. I hope to have
:24:21. > :24:26.demonstrated to you that I am passionate about what we do if an