:00:11. > :00:18.Welcome to a special edition of HARDtalk from George Washington
:00:19. > :00:24.University in Washington, DC. Just how fragile is the global economy?
:00:25. > :00:27.Well, the US capital is currently hosting the annual spring meeting of
:00:28. > :00:32.the International Monetary Fund. Many delegates to that meeting he
:00:33. > :00:36.with me our audience today. I am delighted to say that my guest is
:00:37. > :00:42.the managing director of the IMF, Christine Lagarde. Good 2016 produce
:00:43. > :00:57.an economic shock big enough to plunge the world back into crisis?
:00:58. > :01:06.Thank you very much, and welcome, Christine Lagarde, to HARDtalk.
:01:07. > :01:10.Thank you, Stephen. You, right now, seem to be very twitchy, very
:01:11. > :01:19.nervous, about the state of the world economy. Am I right? We are on
:01:20. > :01:22.alert, but not alarmed. I think that is one of the key points that we
:01:23. > :01:27.would like to make, and that I am happy to make with you, because the
:01:28. > :01:38.global economy is recovering, there is some growth. We forecast 3.2% for
:01:39. > :01:40.2016, possibly 3.5% in 2017. But you are becoming progressively more
:01:41. > :01:48.pessimistic, you are downgrading. We have downgraded our forecast, and
:01:49. > :01:55.what we see is growth that is too slow and too fragile. You will say,
:01:56. > :02:01.compared with what? It is to slow and too fragile to respond to the
:02:02. > :02:06.demand of nearly 200 million people who are looking for jobs. It is too
:02:07. > :02:09.slow and too fragile to increase the standard of living of people who
:02:10. > :02:15.would like to see it grow, and it is too fragile and too slow to continue
:02:16. > :02:19.to eliminate poverty around the world in countries that are still
:02:20. > :02:26.suffering from poverty. Not only that, you seem to be suggesting that
:02:27. > :02:34.without, to quote you, additional measures, to boost growth, market
:02:35. > :02:40.turmoil may continue. You seem to be suggesting we are not that far away
:02:41. > :02:45.of a replay of 2008. What we are saying is that if policy makers
:02:46. > :02:49.don't decide promptly on three categories of measures that I'm
:02:50. > :02:58.happy to describe for you, then yes, there could very well be a real
:02:59. > :03:05.deterioration of this fragile and slow growth, which really would be
:03:06. > :03:10.moving definitely and entrenching what I have coined as the new
:03:11. > :03:14.mediocre, where everything that should be highly slow and everything
:03:15. > :03:18.that should be low is higher. How secure is the global banking
:03:19. > :03:22.system, do you believe? We are talking about the danger of
:03:23. > :03:27.something as to Malta was as 2008 happening again, it suggests to me
:03:28. > :03:30.that all of the talks and spend about securing the banks and
:03:31. > :03:37.ensuring the financial system would never be as vulnerable again, has
:03:38. > :03:42.been for naught. I'm not saying we are in 2008 situation, but what I am
:03:43. > :03:45.saying is that if that slow and fragile growth is entrenched, then
:03:46. > :03:50.dealing with the legacy of the crisis is going to be increasingly
:03:51. > :03:55.difficult. The financial sector has changed significantly over the last
:03:56. > :04:01.seven years. Measures have been taken to strengthen the banks, they
:04:02. > :04:07.have more capital, more of that loss absorbing capacity, in case
:04:08. > :04:10.something happens. The authorities are much more concerned about
:04:11. > :04:15.supervising them and making sure that if something wrong happens they
:04:16. > :04:22.can be dismantled in an organised way, rather than this disorganised
:04:23. > :04:26.way that... Their own staff say that nearly 1 trillion euros worth of
:04:27. > :04:32.non-performing loans, zombie loans, are on the books of Europe's banks.
:04:33. > :04:36.That is what I meant by the legacy of the crisis. If you remember,
:04:37. > :04:39.shortly after the financial crisis, the US banking system had to go
:04:40. > :04:44.through a massive reorganising and had to deal with the non-performing
:04:45. > :04:48.loans. This has not happened everywhere in the world, and there
:04:49. > :04:53.are countries and banks in Europe, particularly in some countries of
:04:54. > :04:58.the eurozone, not all. Which ones? Daily Telegraph are not going to...
:04:59. > :05:05.Don't get me there... In a sense, you are the custodians of the
:05:06. > :05:07.capital system. You have a duty to tell us where the vulnerabilities
:05:08. > :05:14.are greatest in the banking system today. What I can tell you is that
:05:15. > :05:18.the global system and important banks are much more strongly
:05:19. > :05:25.recapitalised and have a better resistance level to a crisis, but in
:05:26. > :05:29.some of southern Europe, for instance, but also in other corners
:05:30. > :05:39.where smaller banks are not as well recapitalised, there is a risk that
:05:40. > :05:45.is there. You talk about Europe, so let's stick with Europe. The grease
:05:46. > :05:51.problem is nowhere near resolved. It seems to me that the IMF and the ECB
:05:52. > :05:57.and the EU now have a fundamentally different problem about what to do
:05:58. > :06:01.with Greece. You are at loggerheads. How are you going to figure out how
:06:02. > :06:09.to resolve the Greek crisis? Everybody wants grease to be more
:06:10. > :06:13.stable -- Greece to be more stable, more solid and more independent. In
:06:14. > :06:20.other words, not relying on the IMF or the European stability mechanism
:06:21. > :06:26.to have finance. Specifically, we just had from Wikileaks information
:06:27. > :06:29.that in March, your crisis management team were talking to IMF
:06:30. > :06:33.officials on the ground in Greece, and said that in their opinion the
:06:34. > :06:40.only way that the Greece crisis could be resolved is if Greece is
:06:41. > :06:47.pushed to another credit event. That is, very close to default. Only
:06:48. > :06:51.then, it seems the IMF believes, the European and international mines
:06:52. > :06:58.will be focused enough to get a deal. Is that what you believe? We
:06:59. > :07:06.are not in the business of soliciting credit events. What we
:07:07. > :07:10.see in Greece is common objectives, and we are calling for a test of
:07:11. > :07:14.realism and sustainability, so we are saying that the numbers have to
:07:15. > :07:19.be realistic. We cannot have far-fetched fantasy hypotheticals
:07:20. > :07:26.concerning the future of the Greek economy. Second, we also need to
:07:27. > :07:31.have real measures that are demonstrated by the Greek
:07:32. > :07:41.authorities, and that will actually restore the Greek economy, and
:07:42. > :07:47.third, it is a three legged up a proposal, there needs to be debt
:07:48. > :07:50.that is sustainable. If you combine the three you needed that operation
:07:51. > :07:54.that will reduce the burden of debt on Greece. The IMF seems to be
:07:55. > :07:57.saying that without meaningful debt relief as part of the bailout
:07:58. > :08:04.package right now, you will walk away. What is meaningful debt relief
:08:05. > :08:09.for Greece mean to you? We are saying one thing, which is debt,
:08:10. > :08:11.which is real measures, which is General equilibrium and
:08:12. > :08:16.sustainability for the country. So it is not just that, I will come
:08:17. > :08:20.back to that, because they know you are interested in debt. What we're
:08:21. > :08:24.saying is that he needs all add up. The more measures are taken, the
:08:25. > :08:30.more realistic they are, the less restructuring will be needed. If the
:08:31. > :08:33.measures are low, poor quality, a lot of debt restructuring will be
:08:34. > :08:42.required. There is a trade-off and it needs to be adding up. Currently,
:08:43. > :08:47.as envisaged, the debt is not sustainable, and what is required is
:08:48. > :08:52.a debt operation. What do you want to see on debt relief? The
:08:53. > :08:57.Europeans, particularly Angela Merkel, they are saying no, it is
:08:58. > :09:01.all about the Greeks coming up first with more serious pension reform and
:09:02. > :09:05.structural reform. Only much later will be talk about the kinds of debt
:09:06. > :09:09.relief the Greeks want. What is the IMF say on the central issue? What
:09:10. > :09:12.we are saying is that it needs to add up and we cannot have one
:09:13. > :09:19.without the other. Does the EU approach work? The reforms have to
:09:20. > :09:25.be conducted, legislated, and on a parallel track, which can be
:09:26. > :09:29.immediately consecutive to that. The debt must be analysed to make sure
:09:30. > :09:32.it is sustainable without package of reforms, and if it is not
:09:33. > :09:37.sustainable, which is most likely to be the case, then a debt operation
:09:38. > :09:43.needs to be considered. That can take multiple forms, it doesn't have
:09:44. > :09:45.the nominal haircut. It could be an extension of maturities, it can be
:09:46. > :09:50.an interest rate holiday for a period of time, it can be much
:09:51. > :09:56.reduced interest on the principle of the Greek debt. We are very open to
:09:57. > :10:02.the modalities of that, but what we cannot compromise on is the fact
:10:03. > :10:06.that it needs to add up. A yes or no, then we must move on. Yes or no,
:10:07. > :10:15.is it possible the IMF will walk away from the Troika they a lap of
:10:16. > :10:22.the Greeks? We will not walk away. Our contribution may vary depending
:10:23. > :10:28.on the actions of the Greeks and the undertakings of the department, but
:10:29. > :10:35.we will not walk away. Other shocks that we see in 2016, and that you
:10:36. > :10:42.have been very strong on in recent statements at the IMF, Brexit. The
:10:43. > :10:46.idea of Britain leaving the EU. Your team have said that would cause not
:10:47. > :10:51.just to be a national, but regional and global economic damage. What do
:10:52. > :10:58.you base that on? Partly preliminary analysis. Guesswork? Partly
:10:59. > :11:02.intuition. There is a tiny bit of my personal feeling that comes into
:11:03. > :11:05.play, because I love so much the UK that I want them to be with the
:11:06. > :11:13.Europeans, of which I consider myself. But we are doing some very
:11:14. > :11:18.in-depth technical and analytical work, because as we always do with
:11:19. > :11:22.the UK as we do it every other economy, we are going to analyse
:11:23. > :11:26.in-depth the status of the UK economy, and we are going to have a
:11:27. > :11:32.special chapter which will concentrate on the potential costs
:11:33. > :11:39.and benefits of the risk of Brexit. You have just looked about your
:11:40. > :11:42.personal, strong view, about Britain and EU, are you comfortable with the
:11:43. > :11:46.fact that the IMF is now making statements that clearly play a huge
:11:47. > :11:52.political role in an internal, democratic tradition of eight? What
:11:53. > :12:02.right does the IMF have two play that kind of role? Clearly embedded
:12:03. > :12:06.in the articles of the IMF is our duty of analysing and maintaining as
:12:07. > :12:13.much as we can, stability in the global economy. You just talked
:12:14. > :12:20.about intuition. No, I said preliminary work that we are doing.
:12:21. > :12:24.Suffice to look at the numbers. Our forecast has been slightly
:12:25. > :12:28.downgraded for the UK, and if you look at the overall assessment of
:12:29. > :12:32.all economist is about the UK economy, it is slightly lower than
:12:33. > :12:36.where it used to be. If you look at the value of the Sterling, it is
:12:37. > :12:43.also slightly lower than where it used to be. Let's look yonder
:12:44. > :12:51.Europe, China. This is an extraordinary statistic. China's
:12:52. > :12:55.exports fell 21% in February for 12 months before that. People around
:12:56. > :13:01.the world are losing faith in China's ability to drive the global
:13:02. > :13:06.economy. How worried are you about China? Our job is not to look at the
:13:07. > :13:12.latest stock market movements, or the most recent numbers. We have to
:13:13. > :13:18.look at trends and fundamentals. Structural issues like the 282% of
:13:19. > :13:24.GDP's worth of debt that they reckon China has accrued. China is deeply
:13:25. > :13:28.indebted and highly vulnerable, and it is your job to make sense of that
:13:29. > :13:34.for the world economy. Absolutely, which is what we are doing. On
:13:35. > :13:40.China, forgive me one microsecond...
:13:41. > :13:47.First of all, let's start with big numbers. The growth of China 2016,
:13:48. > :13:50.we forecasted 6.5%. And surely it's one of the few countries where we
:13:51. > :13:56.have slightly upgraded the number because we looked at the proposed
:13:57. > :14:01.measures under the plan that has just been approved -- actually it's
:14:02. > :14:04.one of the few countries. Some of the structural reforms which we have
:14:05. > :14:09.been advocating are clearly endorsed by all the authorities now. We've
:14:10. > :14:14.been saying for a few years that state owned enterprises must be
:14:15. > :14:19.restructured, must be reformed. This is definitely the project that the
:14:20. > :14:24.authorities have embarked upon. So good news. SPECint. It is an economy
:14:25. > :14:28.that is going through a massive transformation -- second. It's
:14:29. > :14:32.moving from being vastly export driven to being much more focused on
:14:33. > :14:36.its domestic market. It's moving from being heavy industry based to
:14:37. > :14:41.being lighter industry and predominantly service driven. It's
:14:42. > :14:45.clearly moving in terms of opening to the rest of the world,
:14:46. > :14:50.particularly in relation to the capital account, in relation to its
:14:51. > :14:55.supervisory capacity and in relation to mix in strange rate regime. We
:14:56. > :15:01.see all that as transformational -- its exchange-rate regime. Difficult
:15:02. > :15:04.to manage but manageable. Let's move away from significant potential
:15:05. > :15:08.shocks facing the world economy in 2016 and look at the health of
:15:09. > :15:13.global capitalism today. I've called you the custodian of capitalism,
:15:14. > :15:17.global capitalism, I'm not sure if you like that phrase, but this is
:15:18. > :15:23.what one of your key staff said, the economic counsellor, he said,"
:15:24. > :15:26.Stagnant pay, rising inequality created a sense that the rewards of
:15:27. > :15:32.economic growth are being creamed off by mobile elites, the owners of
:15:33. > :15:39.capital, leaving the majority behind". That's a deeply worrying
:15:40. > :15:44.diagnosis of the way capitalism works in the world today. Well I
:15:45. > :15:49.highly respect Maurice up slope's views. I hope so because he works
:15:50. > :15:58.for you. He is the chief counsel of the IMF. Look at our research, look
:15:59. > :16:03.at the numbers, there is clearly increasing inequalities and we
:16:04. > :16:08.believe successive inequalities to have sustainable growth on a
:16:09. > :16:11.long-term basis. We are clearly advocating this issue of successive
:16:12. > :16:16.inequalities be addressed and there are numerous ways to do that. If I
:16:17. > :16:20.may interrupt, because it is so timely and so topical, one of the
:16:21. > :16:24.key ways you might show willing to address the degree to which there is
:16:25. > :16:27.one rule for the rich in the world today and something entirely
:16:28. > :16:31.different for the rest of us is to address the problem of tax
:16:32. > :16:35.avoidance, tax evasion, call it what you will. The Panama papers have
:16:36. > :16:42.revealed so much. Were you surprised by what they revealed? What is
:16:43. > :16:46.needed... Were you surprised, I want to know whether... When we learned
:16:47. > :16:53.so many politicians, business leaders, elites have squirrelled
:16:54. > :16:58.away money for 1-way two reason or another in offshore havens like
:16:59. > :17:01.Panama and islands in the Caribbean, did that surprise you as
:17:02. > :17:06.director of the IMF Grosjean it did a bit, but I haven't seen the
:17:07. > :17:11.documents, I haven't looked at them and I can't comment on the
:17:12. > :17:15.illegality of it all. Irrespective of that, which needs to be addressed
:17:16. > :17:19.per tax authority in each country, and I hope it does, but irrespective
:17:20. > :17:26.of that we need to understand why there are so many loopholes in the
:17:27. > :17:29.system that actually conduce to that sentiment which were very well
:17:30. > :17:34.described of some people feeling excluded from the benefit and the
:17:35. > :17:40.outcome of growth and success, because that is just not right.
:17:41. > :17:44.Here's a figure, Boston Consulting Group reckon private wealth booked
:17:45. > :17:50.in offshore centres grew by 7% in 2014, this is going back a bit, to
:17:51. > :17:56.reach $11 trillion. That's money that isn't being taxed, that isn't
:17:57. > :18:00.going through the state national governments to pay for roads and
:18:01. > :18:05.hospitals and education, because it is being squirrelled away offshore
:18:06. > :18:08.and tax is not being paid. Is it in your view time to get together with
:18:09. > :18:14.national governments, leaders around the world, to close down the
:18:15. > :18:18.offshore highly secretive tax havens, whether they be in the
:18:19. > :18:24.Caribbean, the Channel Islands, statelets in Europe, wherever they
:18:25. > :18:29.may be? I remember in 2010 when I was Finance Minister for France, and
:18:30. > :18:35.together with the president at the time we launched that campaign. And
:18:36. > :18:40.it was a very difficult one of trying to eradicate some of those
:18:41. > :18:45.tax havens. Thus far it has to be said it's been a total and utter
:18:46. > :18:49.failure. No, I disagree with you and I'll tell you why. Many governments,
:18:50. > :18:53.not all, but many governments at the time endorsed the project and said,
:18:54. > :19:00.we need to deal with this. And what is called BEPS, which is funny, not
:19:01. > :19:06.so funny, bass and regime and project shifting project has been
:19:07. > :19:09.undertaken and endorsed by many economies, applies to corporate is
:19:10. > :19:14.in the main and that's an area where it needs to be made universal, and
:19:15. > :19:18.should be made universal the automatic exchange of information
:19:19. > :19:24.between countries. But the problem is everyone has to be part of it. If
:19:25. > :19:28.you have little holes in the system, well, creative thinkers and tax
:19:29. > :19:31.optimisers, and there are plenty of those, and they have great minds and
:19:32. > :19:36.great imaginations, will find ways through those holes. It needs
:19:37. > :19:41.leadership. It needs global leadership. It needs to be totally
:19:42. > :19:44.comprehensive and it needs to include the implementation arm of
:19:45. > :19:49.it. I'll tell you, we are doing a lot of work in that area when we do
:19:50. > :19:50.technical assistance on anti- money-laundering, on
:19:51. > :19:55.counterterrorism financing, we do the assessment and sometimes we have
:19:56. > :20:00.crucifying reports, but nothing gets done. You're saying you're trying to
:20:01. > :20:03.do work at the IMF and you talk about the need for global
:20:04. > :20:07.leadership. Let me ask you a personal question. We need to think
:20:08. > :20:13.outside the box. I'm going to talk in terms of your box, how much tax
:20:14. > :20:18.do you pay on your summary? Like all IMF staff members, and all World
:20:19. > :20:22.Bank staff members, we are tax exempt, that's taken into
:20:23. > :20:27.account... But I do pay tax, don't worry. Your salary is tax-exempt, I
:20:28. > :20:31.no, it's not because you insisted it be that way, it's always been that
:20:32. > :20:34.way, but if you're to be a leader on this, and it sounds like you have
:20:35. > :20:38.the passion and you want to be a leader, that has to change. Don't
:20:39. > :20:43.you have to take a stand and say, it's not acceptable to be a leader
:20:44. > :20:46.and to send a message that says, I want everyone else to pay tax but I
:20:47. > :20:53.don't. You should pay tax, shouldn't you? First of all I do pay tax in
:20:54. > :21:00.France. Not on your IMF salary you don't. On other matters. You get a
:21:01. > :21:05.very substantial tax-free salary. This is an easy little fight to
:21:06. > :21:09.pick. I'll tell you why. All international staff people are tax
:21:10. > :21:17.exempt. Wherever located in the world. It is to avoid under the
:21:18. > :21:21.pressure and under the authority of local tax people they be asked to
:21:22. > :21:26.move in One Direction or the other, and this tax independence if you
:21:27. > :21:32.will is backs, factored into the determination of compensation. I'm
:21:33. > :21:37.not arguing for it, I'm not that it's been around for 70 years, many
:21:38. > :21:41.more years in other institutions. Otherwise you fall prey to what the
:21:42. > :21:45.local government in which the institutions have a seat actually
:21:46. > :21:50.decide to do against you. I wonder whether you can see my point that
:21:51. > :21:55.there is a bit of a... At least a perception problem with leaders such
:21:56. > :22:01.as yourself preaching the message that tax avoidance has to end, and
:22:02. > :22:05.yet... The only thing that would be compatible with the principle which
:22:06. > :22:09.is critically important, that there be no pressure applied by the local
:22:10. > :22:12.authorities were these organisations have their seat, would be some
:22:13. > :22:16.international measures that would apply across the board irrespective
:22:17. > :22:20.of the local authorities. That's precisely the point that is wrong
:22:21. > :22:24.about taxation, everything is global except tax, tax is local and
:22:25. > :22:28.sovereign. You've just been reappointed to a second term at the
:22:29. > :22:32.IMF, clearly the membership are satisfied with the job you're
:22:33. > :22:38.doing. But right now a French court has ordered you to face trial on a
:22:39. > :22:41.charge of negligence involving a complicated payment to a leading
:22:42. > :22:46.French businessman during the time you were French finance minister
:22:47. > :22:50.under the administration of Nicolas Sarkozy. It strikes me in the
:22:51. > :22:54.context of everything you discussed about leadership, integrity, sending
:22:55. > :22:59.the right messages to the world about... You know, the best that
:23:00. > :23:03.Bible cap can be, but it's very difficult for you to continue in
:23:04. > :23:09.this job when you might be summoned to a trial in Paris -- global
:23:10. > :23:13.capitalism. It's not and I function very well and I'm very grateful for
:23:14. > :23:18.the trust that has been expressed to me by this unanimous support of the
:23:19. > :23:21.international community. The court decision has been appealed, the
:23:22. > :23:24.matter will take its course, that lawyers are doing their job, I know
:23:25. > :23:32.there's nothing wrong that the lawyers. You said not so long ago
:23:33. > :23:39.that you need a skin as thick as an old crocodile to do this job. Your
:23:40. > :23:45.skin's in great shape! What did you mean, what did you mean by that,
:23:46. > :23:51.skin as thick as an old crocodile? Over the course of time you have to
:23:52. > :23:59.learn how to grit your teeth and smile. Don't let the bustards get
:24:00. > :24:04.you! And that's what I mean by having a thick crocodile skin. But
:24:05. > :24:08.the nice thing is you can take it off. We have to end, we're out of
:24:09. > :24:11.time, but Christine Lagarde, thank you very much for being on
:24:12. > :24:18.HARDtalk. Thank you very much. APPLAUSE
:24:19. > :24:49.Rather unusually, I'm just about to show you a satellite image
:24:50. > :24:52.containing not a monstrous storm, a really weak weather front.