International Monetary Fund Managing Director Christine Lagarde with FOX Business Network’s (FBN) Liz Claman about today’s announcement that the IMF’s funding needs have decreased. Lagarde said the IMF needs less resources because “the risks we assessed back in early January have faded and receded a bit thanks in particular to what the ECB did with its long-term refinancing scheme.” Lagarde also addressed US Treasury Secretary Timothy Geithner’s comments that the US would not make additional contributions to the IMF and said, “I’m not expecting a check on the table. I understand what the complexities are, but there are multiple ways to support the IMF and I am sure that the US will be helping out.” She discussed whether other nations had committed to contribute, saying, “Japan is very interested.”
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“What is exactly the number? I could not tell you at the moment, but what I know for sure the risks we assessed back in early January have faded and receded a bit thanks in particular to what the ECB did with its long-term refinancing scheme which has helped countries like Italy and Spain, those banks, buy sovereign bonds to facilitate the moving of money around. Our risk assessment is certainly better than what we had in January and as a result we will need a little less resources than what we thought…We want to participate in the global firewall. The Europeans have together act together and build their own firewall, which they have. They are helping themselves for the moment, but around the world we know there are countries that are facing hardship and will come knocking at the door of the IMF to seek some help and lending.”
On whether other nations have committed to funding the IMF:
“I am encouraged. There are many members saying we want to be at the tale when it comes to raising more resources for the fund. Japan is very interested. You have lots of other countries, smaller countries, but they want to be at the table too. Mexico, Poland, Norway, Sweden.”
On US Treasury Secretary Timothy Geithner saying the US does not intend to make additional contributions to the IMF:
“I’m not expecting a check on the table. I understand what the complexities are, but there are multiple ways to support the IMF and I am sure that the US will be helping out. it is not in the interest of the institution, it’s in the interest of the entire membership including the US. The US would be hurt if the crisis was developing in Europe. The US is doing a lot for the IMF…and it will continue doing a lot. I know the multilateral spirit that was initiated in this country by the then treasury of the United States, Mr. White, together with Mr. Cains at the time, sixty years ago. This is still very much alive. It’s necessary for the US leadership.”
On whether “be at the table” means “here is a check”:
“Oh yeah.”
On whether Europe risks facing a lost decade:
“We need to avoid that. I don’t think they nor we can afford to have that part of the world go through a lost decade… we are all in one single big economy that talks to each other, trades with each other, moves money around. What hurts one is going to hurt others so we need to help ourselves all together.”
On what issues Europeans face:
“I think the Europeans have taken a long time to help themselves but they are now at the point where they’ve pretty much tipped all the boxes. Whether it’s the ECB, the national measures taken by Italy or Spain, whether it’s the European firewall and commitment for about $800 billion euros, they’ve done a lot. It’s not just about the euro zone…The countries that have gone through the Arab Springs that are moving in a different direction are going to need help. The cost of not doing anything for them would be much, much higher.”
Full text interview:
LIZ CLAMAN, FOX BUSINESS CORRESPONDENT: Something is showing that there is stress in those markets right now. Charles, thank you very much and we are here with managing director Christine Lagarde of the International Monetary Fund live here at the IMF headquarters. Thank you for joining us exclusively here on Fox Business.
CHRISTINE LAGARDE, MANAGING DIRECTOR, INTERNATIONAL MONETARY FUND: It is a pleasure.
CLAMAN: We began with bond yields looking a little bit stressed in Spain and Italy, but first I would like to first get to the fact that you just left the Brookings Institution where you gave a speech and you very clearly said the crisis is not over yet. Now, your spring meeting is next week where everyone is expecting to say we need more firepower in the form of money. You want more money for the IMF. What is the number you are looking for, Madame Lagarde? Everyone had first thought $500 billion, now we are hearing it has been scaled back to $400 billion. Can you first clarify how much you want?
LAGARDE: I am not fixated on any particular number. What we have consistently said throughout is that we want to participate in the global firewall. And we said, first of all, the Europeans have to get their act together and they have to build their own firewall, which they have. Chancellor Merkel had said this will be done before the end of March. On the 31st of March they announced their firewall. Then it was time for us to reconvene, assess the risk situation, and move on to participate in what we regard as a necessary global firewall — not for the Euro area, although we might have to help them out. But they are helping themselves for the moment.
But around the Euro area, there is fragility and around the world we know that there are countries that are facing hardship and that will come knocking at the door at the IMF to seek some help and some lending. So, what exactly is a number? I could not tell you at the moment. I know for sure that the risk we assessed back in early January have abated and have receded a bit, thanks in particular to what the ECB did with its long-term refinancing scheme, which has helped countries like Italy, like Spain, for instance, buy sovereign — those banks buy sovereign bonds in order to facilitate a little bit, the moving of money around.
So our risk assessment is certainly better than what we had in January and as a result, we will need probably a little less resources than what we had thought back in January.
CLAMAN: You used the word firewall just a few seconds ago. You said that the Europeans did build that. However, Tuesday, Spanish bond yields hit four-month highs. Earlier this morning, Italian bond yields were showing severe — a little bit of stress here, saying we are seeing that there are problems with borrowing costs that’s going higher. Is Spain a risk of being the fourth Euro nation that will need a bailout behind Portugal, Ireland, and Greece? Because people are looking at that and saying why would their bond yield skyrocket, and if so, what is your thought on that?
LAGARDE: We look at that country and we see what they are doing. This new government, which has been elected in late December, is taking very, very strong action when it comes to the labor market, when it comes to the product and services market, and they look now at the proper financing of their banks as well as cutting spending where it is possible. They are doing the right things essentially. They have to do it in better synchronization with the other European members. They have to do it in better synchronization with the European commission. They have to do a better job at communicating what
they are doing. And they have to keep up. When we talk about their financial institutions, they have to recapitalize them, they have to sort themselves out, if I may say. And they should do it now.
But they are on the right track and I was pleased to hear that the European Central Bank is looking carefully at Spain to see what it can do in order to facilitate the proper stability on the bond market when it comes to Spain.
CLAMAN: One of your top jobs when you took over was to start beating the member nation bushes saying, who’s up for giving more money? Who will contribute more? Do you have commitments from certain nations, and if so, who’s stepping up to the plate?
LAGARDE: I am encouraged. There are many members saying we want to be at the tale when it comes to raising more resources for the fund.
CLAMAN: How about Japan?
LAGARDE Lots of — Japan is very interested. You have lots of other countries. You know, smaller countries, but they want to be at the table two. I think of countries like Mexico, like Poland, like Norway, like Sweden. Many of them are saying we want to be there.
(CROSSTALK)
LAGARDE: And I trust that the multilateral approach will prevail.
CLAMAN: — does be at the table mean, here is a check?
LAGARDE: Oh, yes.
CLAMAN: Just to clarify. How about the United States? Secretary of the treasury, Timothy Geithner said last month, in essence, sorry, no. And to quote, he said “The U.S. has no intention of adding more to the IMF, at least for now.” What do you say to that?
LAGARDE: Well, the United States is doing a lot for the IMF. It is – it’s major shareholders, it has veto right over some of the main decisions. It is refinancing a lot of special (INAUDIBLE) rights when they are presented to the U.S. federal bank. So, it is doing a lot, and it will continue doing a lot. I know that the multilateral spirit that was initiated in this country by the then-treasurer of the United States, Mr. White, together with Mr. Keynes of the time, sixty years ago —
CLAMAN: John Maynard Keynes –
LAGARDE: Yes, absolutely. This is still very much alive. And it is necessary for the U.S. leadership. Now, you know, I am not expecting a check on the table. I understand what the complexities are, but there are multiple ways to support the IMF, and I’m sure the U.S. will be helping out. It is not in the interest of the institution, it is in the interest of the entire membership, including the U.S. The U.S. would be hurt if the crisis was developing in Europe.
CLAMAN: Well, it is a tough sell though, regardless –
LAGARDE: I know.
CLAMAN: — because I talk, as any journalist would, in an advance of an interview with someone like you. I speak to people who have been on the inside at the IMF; people who are on the outside as observers. And some of them say, why should we contribute money to the IMF, why should they help the Europeans when it’s really the Europeans who should be raising their own money? And of course, they have through the ECB, but clearly there are issues that you’re concerned about in Europe.
LAGARDE: I think the Europeans have taken a long time to help themselves. But they are now at a point where there is pretty much – ticked all the boxes, if you will. And whether it is the ECB, whether the national measures taken by countries like Italy or Spain, whether it’s the European firewall and commitment for about 800 billion euros, which is roughly $1 trillion. Existing committment, future committments. What we call the firewall. They have done a lot.
But it is not just about the euro zone. You know, it is about eastern and central Europe. It is about other countries of the world. It’s about – just everyone.
CLAMAN: Is there one particular you are really worried about right now?
LAGARDE: I know there are many countries that are or will be knocking at the door of the IMF for support. I will give you an example. Countries that have gone through the Arab Springs, that are in transformation, that are transitioning from an old-fashioned economy that was run in a sort of, you know, very despotic way, so to speak. And that are moving in two different directions. They will need help. Those countries are necessary. And the cost of not doing anything for them would be much, much higher than the cost of doing something.
CLAMAN: Let me speak how I am sure some Americans are thinking. Some of those countries harbor terrorists. Why should we give them any money?
LAGARDE: You know, you think of countries like Tunisia. You think of countries like Egypt. I think it is in their interest as much as in the interest of the world, that their economy be stable, that the democracy be preserved because the economy is healthy and fully and public finances more secure (ph). I don’t think that anybody has an interest in insecurity, instability, volatility in that part of the world.
CLAMAN: Greece. They went heavy on austerity and brought — raising taxes. We saw how that has worked out, not very well. People are committing suicide. It has been a very, very tough time. Hospital visits are way up. There is a lot of poverty now and a lot of concern.on austerity and raising taxes. We saw how that has worked out, not very well. People are committing suicide, it has been a very tough time. Hospital visits are way up. There is a lot of poverty now and have a lot of concern. What is the proper mix of austerity vs. stimulus and have you changed your opinion since watching how higher taxes and more austerity worked or didn’t work, as it were, in Greece?
LAGARDE: It is not just a question of raising taxes. It is also a question of collecting taxes. That is certainly one angle that the Greek authorities have to adopt and adjust. We are giving as much technical assistance as they want to help them on that chapter. Raising revenue, collecting revenue is indispensable for that country. And there are many things that need to be strengthened. The administration needs help and the people of Greece are doing an extraordinary job at trying to keep
that program on track and I commend them for that. It is hard, but it is a process through which the country has to go.
CLAMAN: Madame Lagarde, as you look at the entire region there, does Europe risk facing a lost decade just like that of Japan, which ended up being two decades because they couldn’t get their act together?
LAGARDE: We need to avoid that. I think the European economies altogether represent a massive part of the global economy. I don’t think that they nor we can afford to have that part of the world go through a lost decade. So by a good combination in a good balance between good solid fiscal policies, that will consolidate and consolidate fast and hard in some countries. And the measures that will in the medium- and long-term anchor sufficient stability to allow for some growth now is exactly how we need to help them help themselves.
CLAMAN: As we wrap up, when you were the French finance minister and you had a much more parochial view on what is good for France. Now in this role as the IMF chief you have to look at the broader picture and try to convince other nations who are very worried about keeping their own powder dry, what money they have left to look at the collective greater good. How tough a challenge has that been for you?
LAGARDE: It is a tough challenge because each country is going to look at its own interest, at its own electorate, at its own constituency. And yet, they have to understand that we are all connected. When you look at the banks across the planet, when you look at trade between countries, when you look at the movement of goods and services, we are all in one single big economy that talks to each other all the time, that trades with each other, that moves money around. And what hurts one is going to hurt others. So we need to help ourselves altogether.
CLAMAN: Managing director of the IMF Christine Lagarde thank you so much for speaking with us in a Fox business exclusive.
