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Many others were rebel fighters. Those are the latest headlines. It | :00:05. | :00:15. | |
:00:15. | :00:17. | ||
Welcome to a special edition of HARDtalk from the headquarters of | :00:17. | :00:24. | |
the International Monetary Fund in Washington, DC. The IMF it that the | :00:24. | :00:29. | |
centre of efforts to revitalise the financial world economy. Today I am | :00:29. | :00:32. | |
joined by an audience of delegates to the annual spring meetings of | :00:32. | :00:37. | |
the IMF and by my special guest, the managing director of the IMF, | :00:37. | :00:43. | |
Christine Lagarde. She says her task is to move the world economy | :00:43. | :00:50. | |
from a fragmented three-speed position to a full speed world | :00:50. | :00:56. | |
economy. It is a neat phrase. But how is it to be done? Please give a | :00:56. | :01:06. | |
:01:06. | :01:12. | ||
warm welcome to Christine Lagarde. Christine Lagarde, let us start | :01:12. | :01:19. | |
with a broad overview across the world economy today. Do you feel a | :01:19. | :01:25. | |
sense of deep uncertainty still hangs over the economy? There is | :01:25. | :01:29. | |
still uncertainty, but there is probably less uncertainty than we | :01:29. | :01:35. | |
had a few months back. As you mentioned, we have this three-speed | :01:35. | :01:39. | |
recovery underway. It is essentially the emerging market | :01:39. | :01:44. | |
economies and the developing countries, which are moving not | :01:44. | :01:48. | |
full speed ahead but quite fast. They have sustained the crisis | :01:48. | :01:53. | |
relatively well under coming out of it reasonably solid. We have a | :01:53. | :01:56. | |
second group of countries, essentially the United States of | :01:56. | :01:59. | |
America and a few others like Sweden and Switzerland that have | :01:59. | :02:03. | |
done quite a lot of reforms, particularly in the financial | :02:03. | :02:10. | |
sector. But they have real issues, particularly the US with fiscal | :02:10. | :02:16. | |
consolidation. Are they going too fast now? Yes. Are they going | :02:16. | :02:22. | |
steadily for the future? No. That is an issue. That sounds very | :02:22. | :02:29. | |
serious. Do not want the good one? I do, but you're not happy with the | :02:29. | :02:34. | |
economic management of the United States? We believe the fiscal | :02:34. | :02:38. | |
policies in place are not positioned correctly. We believe at | :02:39. | :02:43. | |
the moment they are doing too much of it. They are contracting by | :02:43. | :02:52. | |
about 1.8%. That is the size of grizzly forecast for them. They are | :02:52. | :02:56. | |
not telling us what they plan for the medium term. Yet we know that | :02:56. | :03:00. | |
they have massive entitlement weight on the economy that would | :03:00. | :03:05. | |
require them to decide for the medium term but they are planning. | :03:05. | :03:10. | |
It is not balanced as it should be. I hope we can get back to that. I | :03:10. | :03:16. | |
rudely interrupted the third speed. I suspect that when we get to Brit, | :03:16. | :03:21. | |
it is the most problematic area of the world economy, we are talking | :03:21. | :03:25. | |
about Europe. We are talking about Europe, particularly the eurozone, | :03:26. | :03:33. | |
and Japan. It is in a place of its own for all sorts of reasons. It is | :03:33. | :03:38. | |
Europe and the eurozone in particular that we see in very mild | :03:38. | :03:45. | |
recession for 2013. It is not picking up fast. That is the | :03:45. | :03:49. | |
slowest of the three groups. It is the one that needs to pursue | :03:49. | :03:54. | |
significant reforms as they have begun. I think we have to focus | :03:54. | :03:59. | |
this conversation on Europe. I want to quote to some words from your | :03:59. | :04:03. | |
chief economist, who said the world economy is as weak as its weakest | :04:03. | :04:08. | |
link. Just to be clear about it, you see Europe as the weakest link. | :04:08. | :04:14. | |
Talking in general terms, yes. This is the weakest link. This point | :04:14. | :04:18. | |
about week as the weakest link asked to do with how interconnected | :04:18. | :04:25. | |
we all are. If one player is down and one growth is low, it is going | :04:25. | :04:31. | |
to have an impact. Let us have a look at the strategy that the Rose | :04:31. | :04:36. | |
Byrne and other governments in Europe are looking at. Let us talk | :04:36. | :04:41. | |
about austerity. It has become the focus of so much debate and it | :04:41. | :04:51. | |
:04:51. | :04:53. | ||
involves the IMF. His austerity going too far? Two points here. | :04:53. | :04:58. | |
Posterity on its own, fiscal consolidation, the reduction of | :04:58. | :05:02. | |
deficits, trying to change the trajectory of debt to make it go | :05:02. | :05:08. | |
down rather than up on its own would not be sufficient. In the | :05:08. | :05:12. | |
same vein, monetary policy alone would not be sufficient. Structural | :05:12. | :05:17. | |
reforms on its own would not be sufficient. You need all of them | :05:17. | :05:22. | |
together. What I am getting is that I am seen signs that the IMF | :05:22. | :05:28. | |
approach to austerity is evolving. A was coming to that. It is because | :05:28. | :05:36. | |
the conditions in Europe are in some ways deteriorating. Yes? | :05:36. | :05:42. | |
coming to that. We are coming out, very gradually, of the worst | :05:42. | :05:47. | |
possible recession since the Second World War. It is a very complicated | :05:47. | :05:52. | |
and complex crisis. He to live in Spain, Greece, in a host of | :05:52. | :05:56. | |
different countries in Europe, you cannot feel you're coming out of a | :05:56. | :06:01. | |
recession at all. You are not yet coming out of recession, but I want | :06:01. | :06:10. | |
to narrow down to those countries. Very complex landscape, financial | :06:10. | :06:14. | |
crisis, real estate crisis. The discussion between the real economy | :06:14. | :06:19. | |
and the markets. In that context, fiscal consolidation had to take | :06:19. | :06:27. | |
place. Those deficits had to be reduced. The question that we ask | :06:27. | :06:32. | |
now and has to be asked is, is it going too fast? Is it going to deep | :06:32. | :06:41. | |
and is it being efficient? For some countries, it has to slow down. The | :06:41. | :06:47. | |
pace was too fast. They have room to manoeuvre and let growth pick up | :06:47. | :06:52. | |
a little bit. I want to mention one other country where it is | :06:52. | :06:59. | |
controversial, the United Kingdom. Really? Yes. Your own chief | :06:59. | :07:05. | |
economist is now very specific. He says that it may be time to adjust | :07:05. | :07:09. | |
the original fiscal consolidation plan of George Osborne, the | :07:09. | :07:12. | |
Chancellor of the Exchequer in the United Kingdom. He says George | :07:12. | :07:16. | |
Osborne is playing with fire because conditions have | :07:16. | :07:23. | |
deteriorated but the policy has not changed. Will you back those words? | :07:23. | :07:26. | |
I think what is important is the collective wisdom we have tried to | :07:26. | :07:31. | |
put together. The Department is clearly a very important factor in | :07:31. | :07:39. | |
our thinking. When we say, collectively, that it may be time, | :07:39. | :07:45. | |
it should be considered, we certainly have a collective view. | :07:45. | :07:49. | |
This is cogent, isn't it? You and others have been delivering a | :07:49. | :07:58. | |
message for some time that a reassessment is needed based on | :07:58. | :08:04. | |
conditions in the wider economy. One can look at all the figures, UK | :08:04. | :08:09. | |
downgraded yet again, the economic medicine is not working at the | :08:09. | :08:15. | |
moment. Is it not time for you to say, enough of this review and | :08:15. | :08:22. | |
reassessment Procedure. Now you need to shift course. First of all, | :08:22. | :08:28. | |
I do not think that we have shifted. For the past couple of years we | :08:28. | :08:35. | |
have been saying that this is a very strong programme. One has to | :08:35. | :08:40. | |
watch what is the growth, what is the environment, what are the | :08:40. | :08:44. | |
constraints. We have consistently set out. It is not a new view that | :08:44. | :08:52. | |
we would be coming up with. I am sure you have seen this. The | :08:52. | :08:57. | |
Financial Times is now talking about a de stop growing between the | :08:57. | :09:06. | |
IMF and the British government. -- dust up. They say that they simply | :09:06. | :09:12. | |
will not do it. They are wrong. did not know about this strange | :09:12. | :09:20. | |
boy's language. This is not how we operate. The point is there that | :09:20. | :09:25. | |
you at the IMF and the British government now seem to have a | :09:25. | :09:32. | |
serious difference on this key issue of how to manage fiscal | :09:32. | :09:36. | |
consolidation and at the same time revive an economy and get growth | :09:36. | :09:42. | |
going. We have always had the same line. Countries that have a long | :09:42. | :09:49. | |
way to go, and Britain came from an 11% deficit, have to conduct fiscal | :09:49. | :09:55. | |
consolidation consistently. Giving a medium-term objective and giving | :09:55. | :10:01. | |
reliability and confidence that these policies will be put in place. | :10:01. | :10:06. | |
The second point, we have also consistently said that clearly one | :10:06. | :10:10. | |
has to take into account the environment and the growth that | :10:10. | :10:16. | |
applies to the country. The UK has had some positive growth. It is | :10:16. | :10:21. | |
forecasting some positive growth next year. With these parameters in | :10:21. | :10:27. | |
mind, which are exactly what the IMF has an institution together | :10:27. | :10:33. | |
with its research department think, we do not do bus stop, we do | :10:33. | :10:39. | |
dialogue with authorities. -- dust up. We are going to sit down before | :10:39. | :10:49. | |
:10:49. | :10:50. | ||
the review and explore a why this is working. Our export working? Is | :10:50. | :10:54. | |
the funding for the lending programme that is very put in place | :10:54. | :10:59. | |
well working and if not why not? We are going to do all that and we're | :10:59. | :11:03. | |
going to do it in a very even fashion. Not been prejudiced | :11:03. | :11:11. | |
towards one or the other. Not being supportive of one or the other. We | :11:11. | :11:16. | |
want to do a good job and give the country a good chance to explain | :11:16. | :11:22. | |
why they are doing this and why we are recommending this or that. | :11:22. | :11:28. | |
you do want to see more flexibility from the United Kingdom? We are | :11:28. | :11:33. | |
saying that with this medium term strong anchoring of fiscal | :11:33. | :11:38. | |
consolidation, the pace has to be adjusted under the circumstances. | :11:38. | :11:44. | |
Given the weak growth we have observed lately because of reduced | :11:44. | :11:48. | |
demand addressed to the economy, now might be the time to consider. | :11:48. | :11:53. | |
But we want to have the dialogue. I do not think it is fair on any of | :11:53. | :12:01. | |
our members, we have 188 of them, to pass a final judgement. The | :12:01. | :12:08. | |
words used to matter. When we say that we may consider, we're opening | :12:08. | :12:14. | |
the door. But now is the dialogue. Let us focus briefly on Cyprus, the | :12:14. | :12:20. | |
most recent eurozone bailout. the most difficult as well. Are you | :12:20. | :12:27. | |
proud of the role the IMF played? You are trying to imply that it was | :12:27. | :12:31. | |
so difficult I cannot say that I'm proud of what we did. Let me tell | :12:31. | :12:37. | |
you something, I am proud of the team that actually put Alice and | :12:37. | :12:40. | |
Alice and Alice, late night days and weekends, trying to help the | :12:40. | :12:46. | |
country that was in such a difficult position and had really | :12:46. | :12:51. | |
delayed the curing of the problem by securing a loan that took them | :12:51. | :12:57. | |
out of the market for a year and a half. Had they done it a bit fovea, | :12:58. | :13:03. | |
it could not have been as complicated. -- earlier. Am I proud | :13:03. | :13:08. | |
of it? I am proud of the teams. They have done as good a job as | :13:08. | :13:13. | |
they could of a very difficult case. I am happy to go into the details. | :13:13. | :13:20. | |
Let us not spend too long on it. But first, you became, the IMF | :13:20. | :13:27. | |
became the party to an initial rescue deal that the Cypriot public | :13:27. | :13:33. | |
absolutely rejected. An initial deal that was going to cost even | :13:33. | :13:39. | |
small bank depositors a significant amount of money. It seemed to break | :13:39. | :13:44. | |
a fundamental trust about the security of small savers and | :13:44. | :13:50. | |
banking deposits. Do you regret that? I regret that we did not | :13:50. | :14:00. | |
explore sufficiently the find, if you will, between members of | :14:00. | :14:03. | |
government and the persons who were negotiating on the health of the | :14:03. | :14:11. | |
country. There would be put down views by the population. Just to | :14:11. | :14:17. | |
remind ourselves, we're talking about less than one million people. | :14:17. | :14:24. | |
0.02 % of the eurozone's GDP. A banking sector eight times the size | :14:24. | :14:28. | |
of the country itself. Massive depositors, including from non- | :14:28. | :14:38. | |
:14:38. | :14:46. | ||
residents. A restructuring of banks You were a party to it, which | :14:46. | :14:51. | |
amounts to... To quote one leading European commentator, it drove a | :14:51. | :14:57. | |
coach and horses through the big idea of banking union, because when | :14:57. | :15:02. | |
it came down to it, the message to Cyprus was - it is your problem. We | :15:02. | :15:06. | |
will offer you some money, but you are going to have to bear the brunt | :15:06. | :15:10. | |
of the pain. We found out after the initial deal it is going to be much | :15:10. | :15:16. | |
more pain. The Cypriots are facing the most unimaginable burden to pay | :15:16. | :15:23. | |
off the price of this rescue deal. Just to remind you, all of the | :15:23. | :15:30. | |
accounts under 100,000 euros are totally protected. Some of the | :15:30. | :15:35. | |
accounts in one bank are going to take a haircut of about 37%, the | :15:35. | :15:40. | |
bigger accounts. The other ones are going to go through it a bad bank, | :15:40. | :15:46. | |
could paint process. Overtime and maturity they will recover some of | :15:46. | :15:52. | |
their money. My take on it, looking at the future, is that this Cyprus | :15:52. | :16:02. | |
case, as small as it was, will hope fully convince the Europeans, | :16:02. | :16:06. | |
particularly the members of the eurozone, that a European banking | :16:06. | :16:11. | |
union is an absolute necessity and has to be put in place in quickly. | :16:11. | :16:15. | |
Had there been a banking union in place, the common superviser who is | :16:15. | :16:19. | |
in charge of not just looking at the big guys, but also supervising | :16:19. | :16:24. | |
the three largest banks in any of the member states, would have also | :16:24. | :16:29. | |
seen that there was something funny about this, particularly the | :16:29. | :16:39. | |
largest banks, growth coming from a relatively small capital. That | :16:39. | :16:42. | |
would have been won. The second one is that the European system would | :16:42. | :16:47. | |
have helped in the rescue package and would have directed what was to | :16:47. | :16:53. | |
be done. A final thought on Europe. You have made the point about | :16:53. | :16:59. | |
banking union being so important to stabilising the eurozone. We don't | :16:59. | :17:05. | |
have a full and proper banking union. One person goes further. He | :17:05. | :17:09. | |
said, in the end, there is no alternative if the euro is to work | :17:09. | :17:13. | |
but to give birth to the missing ingredient - a European Treasury | :17:13. | :17:18. | |
with the power to tax and therefore borrow. In the longer term, is he | :17:18. | :17:24. | |
right? I think he will be gone by then. I might be gone as well. To | :17:24. | :17:32. | |
have that as a goal, if the people of Europe and the leaders of Europe | :17:32. | :17:36. | |
have that political objective to turn the currency union into | :17:36. | :17:41. | |
monetary union, which it is now, into a banking and fiscal union, | :17:41. | :17:46. | |
into a political union, that is where they should go. Your answer | :17:46. | :17:50. | |
was neat and amusing, but it raises another question, if it is so far | :17:50. | :17:54. | |
away and so difficult to achieve, is it the implication that in the | :17:54. | :17:58. | |
interim the eurozone is always going to be unstable and | :17:58. | :18:05. | |
dysfunctional? It just means that I will take my retirement early. It | :18:05. | :18:10. | |
is a complicated structure, there is no question up you have 17 | :18:10. | :18:16. | |
member states. 17 flags. 17 national anthems for 17 treasury | :18:16. | :18:23. | |
departments. They are deciding to come together to have consistent | :18:23. | :18:27. | |
fiscal policies and set debt ceilings and so on. Not all of it | :18:27. | :18:33. | |
works, but in times of smooth sailing, the boat is OK. In times | :18:33. | :18:39. | |
of Tempest, then you can see that the mast does not hold as well as | :18:39. | :18:44. | |
it should. That you have to put a little bit of is that and the other | :18:44. | :18:48. | |
around the vessel. That is what is happening at the moment. They need | :18:48. | :18:53. | |
to move faster. Let's move offer of Europe and think of other | :18:53. | :18:58. | |
challenges facing the IMF. I want to talk particularly about one key | :18:58. | :19:03. | |
study. That is Egypt. Egypt is desperate for assistance from the | :19:03. | :19:13. | |
IMF, up to the tune of $5 billion. We sea the economy that is in dire | :19:13. | :19:18. | |
straits. After months of tough and as the Asian, you seem to be a long | :19:18. | :19:22. | |
way from offering that assistance. -- tough negotiation. Is that | :19:22. | :19:29. | |
because the IMF is focused on the eurozone, so it is not lending | :19:29. | :19:32. | |
support to difficult situations like Europe? I can assure you that | :19:32. | :19:38. | |
is not the case. I was in Egypt in August after the appointment of the | :19:38. | :19:42. | |
prime minister. I thought it was a very important statement to make to | :19:42. | :19:45. | |
the Egyptian people and to the Egyptian authorities that we were | :19:45. | :19:49. | |
paying attention, that we wanted to be in a strong and productive | :19:49. | :19:54. | |
dialogue with them. And we were on the verge of concluding a programme | :19:54. | :20:00. | |
in November, 2012, which is by all accounts very fast. I am there in | :20:00. | :20:04. | |
August, the team works hard if and go in the field spending days and | :20:05. | :20:09. | |
nights working with the teams, they put a programme in place, but for | :20:09. | :20:14. | |
political reasons, no criticism of it, but for political reasons the | :20:14. | :20:19. | |
President and the Prime Minister had to pull out tax reforms that | :20:19. | :20:24. | |
they were just about to put to the Parliament. What do we do? We go | :20:24. | :20:29. | |
back. We will return to Egypt. We have had teams on the ground | :20:29. | :20:35. | |
negotiating over and over again. They just came back a few days ago. | :20:35. | :20:39. | |
There is still a way to go before we complete the agreement because | :20:39. | :20:44. | |
two things... People won't know the detail, but to be clear, as I | :20:44. | :20:48. | |
understand it, there is still a lot of discussion about whether the | :20:48. | :20:55. | |
Government is prepared, as you want them to be, to curtail on subsidies | :20:55. | :21:01. | |
for wheat, for fuel, things that the poor in Egypt absolutely depend | :21:01. | :21:05. | |
on. This gets to the heart of how the IMF handles negotiations like | :21:05. | :21:12. | |
this. A Pul?I ? this. A Pul economists said the IMF approach is | :21:12. | :21:15. | |
they call a negotiation, but the fact is all the power is on one | :21:15. | :21:20. | |
side, the IMF's. Many in emerging economies feel that the way you | :21:20. | :21:23. | |
operate is secretive, it lacks transparency and accountability, | :21:23. | :21:28. | |
and it is fundamentally unfair. think it is a fundamentally unfair | :21:29. | :21:34. | |
comment. Seriously. Because everything that we do it is | :21:34. | :21:39. | |
approved by a board representing the 188 members of the institution. | :21:39. | :21:44. | |
It is not as if you have a group of secretive economists corking up | :21:44. | :21:54. | |
:21:54. | :21:54. | ||
their little thing on the side. It is far more complicated. It is a | :21:54. | :21:58. | |
constant dialogue. At the end of the day, it is the programme of the | :21:58. | :22:04. | |
country itself. You remember my point about Cyprus. You need to | :22:04. | :22:07. | |
have political support. That is one of the things we want to have in | :22:07. | :22:10. | |
Egypt, which is why we talk with the government, but we also talk | :22:10. | :22:14. | |
with the opposition. The elections are down the road and in the | :22:14. | :22:18. | |
meantime we have very few people to talk to that will say, yes we want | :22:18. | :22:22. | |
to do that. One point on the subsidies because I think it is a | :22:22. | :22:32. | |
much money spent on subsidies around the world? Two trillion | :22:32. | :22:36. | |
dollars going to subsidy. If you look in the details of who gets the | :22:36. | :22:41. | |
subsidies, it is not so much the poor people. The bulk of the | :22:41. | :22:44. | |
subsidies actually go to people who don't really need it. Those who | :22:44. | :22:48. | |
really need the subsidies, the poor people, get a little chunk of it. | :22:49. | :22:53. | |
What we are saying to Egypt is, we design, make sure that the poor | :22:53. | :22:57. | |
people have what they need by way of cash transfers, by way of | :22:57. | :23:01. | |
special smart cards that give them access to oil because they need | :23:01. | :23:05. | |
that as well, and the rest of it, the rest the ghost to those that | :23:05. | :23:10. | |
are needed, it is OK. There is enormous pressure on you. You have | :23:10. | :23:14. | |
been described as one of the most powerful women in the world economy, | :23:14. | :23:22. | |
alongside Angela Merkel, and if you face a real personal difficulty. | :23:22. | :23:25. | |
Magistrates want to question you about allegations of | :23:25. | :23:28. | |
misappropriation of public funds and aiding and abetting | :23:28. | :23:33. | |
falsification. You have already seen your apartment search by the | :23:33. | :23:37. | |
authorities. This is making it difficult for you to do your job, | :23:37. | :23:44. | |
is it not? No, it's not. I am trying to focus 100% of my energy, | :23:44. | :23:50. | |
my enthusiasm, my smile on the job that I have to do. I had the huge | :23:50. | :23:53. | |
privilege of being supported by a team which is not looking at those | :23:53. | :23:57. | |
things that you just mentioned. They exist, I will deal of it and I | :23:57. | :24:00. | |
will do what I have to do. If you are placed under formal | :24:00. | :24:06. | |
investigation, would your position still be tenable? At the IMF we do | :24:06. | :24:12. | |
not speculate on personal evolution of things. At the moment I am | :24:12. | :24:16. | |
telling you this - I am focusing on what I have to do. I hope to have | :24:16. | :24:21. | |
demonstrated to you that I am passionate about what we do if an | :24:21. | :24:26. |