Sunday

4th Dec 2022

Opinion

Why the eurozone needs an outsider to replace Strauss-Khan

The downfall of Dominique Strauss-Khan is a fall from grace of epic proportions: one week well-placed to become the next President of France and the next remanded in a New York jail facing sexual assault charges.

Regardless of his innocence or guilt, his career is over. As well as being a personal tragedy, this is a tragedy for the European left and the credibility of the IMF, whose image had been reformed under Mr Strauss-Khan's leadership. More importantly than that, it is a disaster for the immediate future of negotiations on Greece, Ireland and Portugal.

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  • "The last thing the Eurozone needs is for one of its own to run the IMF" (Photo: wfabry)

During the series of backstairs deals, panicked bail-outs and austerity packages, Strauss-Khan has been the most influential curb on the likes of Angela Merkel, French Finance Minister Christine Lagarde and George Osborne. If these three had had their way, the terms attached to the Greek and Irish loans would be far tougher and the countries might well be even more impoverished than they are now.

The answer to the question of who should replace Strauss-Khan and where he/she should come from should be fairly straightforward. Although the long-running trade and currency battle between the US and China, and the need to complete the post-crisis regulation of the financial sector will be huge challenges, the debt crisis in the eurozone is the single most important issue facing the global economy and it will not go away for the foreseeable future.

Several countries are at risk of bankruptcy and it remains possible that further loans will be required, not just for Greece, Ireland and Portugal, but for other countries as well. Although Christine Lagarde is highly intelligent and able, the Eurozone needs the next IMF head to be an independent minded outsider, preferably a big name politician and a strong crisis manager. So who are the candidates who fit the bill?

The most obvious big-name is Gordon Brown. Although hated by UK Prime Minister David Cameron and his Conservative-led government the truth is that Brown has always commanded respect at international level for leading the response to the financial crisis, with a strong relationship with Barack Obama.

Meanwhile, at EU level many politicians from centre-right, liberal and centre-left parties expressed their surprise at Cameron's hostile response when Brown's name was linked with the job just over a month ago. Having chaired the IMF's key policy committee for nearly a decade, Brown is a truly internationalist economist.

However, with Sarkozy, Merkel, Cameron and Berlusconi lining up to back Lagarde, and the US yet to commit to a candidate, Brown seems unlikely to get the support he needs. In this case, the real stand-out candidate is Trevor Manuel, who was South Africa's Finance Minister from 1996-2009.

Having led South Africa's economy through its post-Apartheid difficulties to becoming the powerhouse of the continent, Manuel's CV boasts a glittering array of international positions in the IMF, G20 and the UN. Manuel chaired the IMF Board of Governors in 2000, as well as its Development Committee from 2001-05, and chaired the 2007 G-20 summit. At UN level he was appointed UN Special Envoy for Development Finance in 2008, and last year served the UN's High Level Advisory Group on Climate Change Finance. This, combined with his record as Nelson Mandela's tough talking Finance Minister, makes him a very strong contender.

Within the context of the eurozone's sovereign debt crisis, it is vital that the IMF takes an independent and objective position. This is simply not possible if a eurozone candidate gets the job. Unlike Lagarde, both Brown and Manuel (and other non-eurozone candidates) would have no vested interests and would have the freedom to tell the home-truths about how the eurozone can survive.

Currently the narrative pursued by the French and German governments is that debt restructuring cannot even be contemplated. The likes of Greece and Ireland must live up to their commitments to sell off their state-owned assets and slash spending even deeper than the huge cuts they have already pushed through.

Yet this line of arguing is intellectually dishonest and will not work. In fact it has already demonstrably failed over the past year, with both countries plunged into deep recessions. Left as they stand, neither Greece nor Ireland will be able to cover their debts under the current bail-out arrangements.

The conditions of the EU bail-outs are stricter than anything the IMF would offer a distressed country, and both countries are suffering because of the cuts they have already made. As a result, credit rating agencies keep downgrading their creditworthiness so they cannot get access to the bond markets. Until this vicious spiral is addressed by a pragmatic crisis manager, the efforts of the Greek and Irish governments and their people will achieve nothing - both countries will go bust.

In this context, absolutely the last thing the eurozone needs is for one of its own to run the IMF. Instead of reverting to stereotype by carving up the big positions among themselves Europe's leaders should think twice - Strauss-Khan's defenestration offers the perfect opportunity for the IMF's Managing Director to come from a developing nation.

There are outstanding candidates from outside the eurozone, and if European leaders really do want to save the euro they should realise that its future would probably be far safer in the hands of an outsider.

The writer is a political adviser to the Socialists and Democrats group in the European Parliament. He is writing in a personal capacity.

Disclaimer

The views expressed in this opinion piece are the author's, not those of EUobserver.

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