What does Lagarde know about capitalism or fiscal discipline?

PUBLISHED : Sunday, 29 January, 2012, 12:00am
UPDATED : Sunday, 29 January, 2012, 12:00am


As Europe struggles with its debt crisis ... there is a sense at the heavily guarded World Economic Forum that free markets are on trial.'

SCMP, January 26

International Monetary Fund chief Christine Lagarde joined world financial and trade organisation chiefs in warning policymakers gathering at Davos next week against fiscal cuts that jeopardise growth.

SCMP, January 21

So here we have a clutch of European governments that decided they would have a common currency and, in order to make that currency work, set limits to the fiscal deficits and debts that any of them could incur.

In the event, none of them kept their promises and some consistently exceeded both the deficit and the debt limits. At least one of them has been revealed a proven liar in its fiscal reporting and others are suspected of the same.

Their representatives are now gathered at Europe's biggest annual talk shop to discuss what went wrong and they have come to an answer. It is the fault of free markets.

I can thus understand why this forum is so heavily guarded. These people hold captive an embarrassing truth. The world shall not hear from them that they are themselves to blame. That would be intolerable. Blame the capitalists instead.

I have only one difficulty in following the way they think. How would they know what a capitalist is? Continental Europe hasn't seen any for more than a century. In Germany they were pushed out by Bismarck, in France even earlier, in Spain they never existed at all and in my native Netherlands a civil servants' cabal has had all 10 fingers in every pie since the 17th century.

Find me any decent-sized European corporation that isn't so hemmed in by regulations, fines, subsidies, rulings, official guidance and all the other weapons of the bureaucrats' armoury that its directors can freely determine the uses they will make of its capital within a free market.

Yes, a few names may indeed fit the bill. And now think again. They fit the bill because of their foreign sales and operations. Within Europe they haven't a chance.

And now to Christine Lagarde, by profession a labour lawyer and thus eminently qualified to be finance minister of France from June 2007 to June 2011 and now head of the IMF, thanks to her predecessor's sudden over-fondness for hotel maids.

She obviously subscribes to the theory that governments should incur deficits in bad times in order to stimulate the economies over which they preside, and should restore their fiscal positions in good times.

How sad then that, going by this theory, France has suffered nothing but bad times for all of the last 38 years. The French government has run annual deficits since 1974.

Christine Lagarde's own record as French finance minister is instructive. The red sections of the lines in the two charts show you what happened to the French fiscal deficit and French government debt under her tender ministrations.

But I forget. There was a bad, bad time in 2009. In no way can it therefore be her fault that fiscal shakiness in France has significantly contributed to doubts about the euro.

There, done it again, ruined my chances of ever getting an all- expenses-paid invitation to the ski slopes at Davos. Oh well.