I met with Lagarde just days before Greece made its payment to the IMF. Yanis Varoufakis, Greece’s finance minister, had just told journalists that Greece “intends to meet all obligations to all its creditors, ad infinitum.” Did she believe that? “I only believe the statement that he made to me. And that is that Greece is going to honor the payment that is due this week.” Lagarde sidestepped discussion of the long-term—the ad- infinitum—outlook for Greece, but she did admit that she is concerned about the medium-term prospects for the Greek economy. Remedying the situation will require cooperation among the parties and goodwill, she said, “and there is plenty of that on our side.”
In the past, Lagarde has not hidden her frustration with Angela Merkel’s reluctance to act more aggressively to stimulate Europe’s beleaguered economies. Lagarde attributes this reluctance less to Merkel’s ideology than to a “mindset that’s very common among German taxpayers.” She listed the advantages that Germany has gained from European integration—from the euro to freer mobility of labor—and maintained that these factors have boosted its export-based economy. Wages in Germany have gone up, she noted optimistically, which means that the labor costs of its exports will be more aligned with those elsewhere in Europe. She also welcomed Germany’s recent investments in infrastructure, pointing out that German public investment has been significantly lower than in other European countries.
But, beyond Greece and Germany, is the European project structurally flawed? Can a continent with a single currency shared by nations with economies that remain far too fragmented, each with its own regulations and fiscal policies, be stable? “You are describing the past,” Lagarde countered, arguing that following the financial crisis the “European project is stronger than ever.”
Many Europeans—buffeted by stubbornly high unemployment, mounting inequality, crumbling social safety nets, and escalating social tensions—would likely read that assessment and ask what world Lagarde is living in, I observed.
“I know all that,” she responded. “I was talking about the European project, not about the progress. That project is now more consolidated, stronger, and has better defenses. Does this mean that conditions for growth and prosperity have been enhanced? Not yet. But a lot has been done in the monetary and fiscal areas. And there is still a lot to do in terms of structural reforms; especially investments in infrastructure. These two levers—structural reforms and infrastructure investments—are absolutely necessary to stimulate growth, but policymakers have not used them as much as they should.”
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Policymakers have also not done enough, according to Lagarde, to bring women into positions of power. She has made clear her disappointment that 23 of the 24 members of the IMF’s board of directors are men. “I can’t do anything about that as they are appointed by their respective governments, but I am happy that among the senior staff of the Fund there are now many women,” she explained.