Economy

Who Is The Real Christine Lagarde?

Op-Ed: Is the former French Finance Minister and current head of the IMF a Euro-booster or Euro-skeptic? The truth is that the question is misplaced. Lagarde’s recent alarmist speech about European banks is a reminder that her first objective should be so

Christine Lagarde at the 2011 e-G8 Forum
Christine Lagarde at the 2011 e-G8 Forum
François Vidal

PARIS - Which Christine Lagarde is to be believed?

The Lagarde at French Finance Ministry headquarters less than three months ago who was putting up a reassuring face about the health of European banks; or the Lagarde who, as head of the International Monetary Fund, was declaring this past weekend that immediate measures were needed to recapitalize those same banks, by force if necessary.

One thing is for sure: the new IMF chief's alarmist speech only adds fuel to the fire of the financial crisis. The fact that this woman, who was one of the strongest supporters of the bank "stress tests' when she was still in France, has now clearly sided with the "Euroskeptics," can only undermine the already shaky trust in the stability of the banking sector.

Indeed, her words give the feeling that Christine Lagarde is now finally at liberty to talk freely. Now that she is in Washington, she might finally tell the truth and lead the way towards a financial and economic recovery.

This feeling, however, is both wrong and misleading. Wrong, because in substance, the recapitalization of the banks has already started. European banks have raised 60 billion euros between January and June 2011. Whether they did it with their own means or via public support, it is happening right now. The recent announcement of two major Greek banks merging proves it.

Admittedly, the attempt is not very well spread out among the different "actors," and is undoubtedly too slow. Still, everyone is now convinced that the basic share of stockholder equity must be increased. And not only in Europe.

And it is also misleading because Christine Lagarde's words -- and the words of all those who campaign for a forced recapitalization of the banks -- can lead some to believe that this piling up of stockholder equity is the singular solution to the crisis, a kind of barrier against which speculators' attacks will finally be broken.

This is of course a fantasy. When the markets begin to wonder whether France would be able to pay off its debt, we suspect that the banks may never have enough shares to absorb a major run on government bonds. Today the urgency is to find a political solution to the sovereign debt crisis. This can be handled by better governance on both sides of the Atlantic, which must include an end to inopportune declarations.

Read the original article in French

Photo - Roebot

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Geopolitics

Iran-Saudi Arabia Rivalry May Be Set To Ease, Or Get Much Worse

The Saudis may be awaiting the outcome of Iran's nuclear talks with the West, to see whether Tehran will moderate its regional policies, or lash out like never before.

Military parade in Tehran, Iran, on Oct. 3

-Analysis-

LONDON — The Iranian Foreign Ministry spokesman Saeed Khatibzadeh said earlier this month that Iranian and Saudi negotiators had so far had four rounds of "continuous" talks, though both sides had agreed to keep them private. The talks are to ease fraught relations between Iran's radical Shia regime and the Saudi kingdom, a key Western ally in the Middle East.

Iran's Foreign Minister Hossein Amirabdollahian has said that the talks were going in the right direction, while an Iranian trade official was recently hopeful these might even allow trade opportunities for Iranian businessmen in Saudi Arabia. As the broadcaster France 24 observed separately, it will take more than positive signals to heal a five-year-rift and decades of mutual suspicions.


Agence France-Presse news agency, meanwhile, has cited an unnamed French diplomat as saying that Saudi Arabia wants to end its costly discord with Tehran. The sides may already have agreed to reopen consular offices. For Saudi Arabia, the costs include its war on Iran-backed Houthis rebels fighting an UN-recognized government in next-door Yemen.

The role of the nuclear pact

Bilateral relations were severed in January 2016, after regime militiamen stormed the Saudi embassy in Tehran. Amirabdollahian was then the deputy foreign minister for Arab affairs. In 2019, he told the website Iranian Diplomacy that Saudi Arabia had taken measures vis-a-vis Iran's nuclear pact with the world powers.

It's unlikely Ali Khamenei will tolerate the Saudi kingdom's rising power in the region.

He said "the Saudis' insane conduct toward [the pact] led them to conclude that they must prevent [its implementation] in a peaceful environment ... I think the Saudis are quite deluded, and their delusion consists in thinking that Trump is an opportunity for them to place themselves on the path of conflict with the Islamic Republic while relying on Trump." He meant the administration led by the U.S. President Donald J.Trump, which was hostile to Iran's regime. This, he said, "is not how we view Saudi Arabia. I think Yemen should have been a big lesson for the Saudis."

The minister was effectively admitting the Houthis were the Islamic Republic's tool for getting back at Saudi Arabia.

Yet in the past two years, both sides have taken steps to improve relations, without firm results as yet. Nor is the situation likely to change this time.

Photo of Iranian Supreme Leader Ali Khamenei in 2020

Iranian Supreme Leader Ali Khamenei in 2020

commons.wikimedia.org

Riyadh's warming relations with Israel

Iran's former ambassador in Lebanon, Ahmad Dastmalchian, told the ILNA news agency in Tehran that Saudi Arabia is doing Israel's bidding in the region, and has "entrusted its national security, and life and death to Tel Aviv." Riyadh, he said, had been financing a good many "security and political projects in the region," or acting as a "logistical supplier."

The United States, said Dastmalchian, has "in turn tried to provide intelligence and security backing, while Israel has simply followed its own interests in all this."

Furthermore, it seems unlikely Iran's Supreme Leader Ali Khamenei will tolerate, even in this weak period of his leadership, the kingdom's rising power in the region and beyond, and especially its financial clout. He is usually disparaging when he speaks of Riyadh's princely rulers. In 2017, he compared them to "dairy cows," saying, "the idiots think that by giving money and aid, they can attract the goodwill of Islam's enemies."

Iranian regime officials are hopeful of moving toward better diplomatic ties and a reopening of embassies. Yet the balance of power between the sides began to change in Riyadh's favor years ago. For the kingdom's power has shifted from relying mostly on arms, to economic and political clout. The countries might have had peaceful relations before in considerably quieter, and more equitable, conditions than today's acute clash of interests.

For if nuclear talks break down, Iran's regime may become more aggressive.

Beyond this, the Abraham Accord or reconciliation of Arab states and Israel has been possible thanks to the green light that the Saudis gave their regional partners, and it is a considerable political and ideological defeat for the Islamic Republic.

Assuming all Houthis follow Tehran's instructions — and they may not — improved ties may curb attacks on Saudi interests and aid its economy. Tehran will also benefit from no longer having to support them. Unlike Iran's regime, the Saudis are not pressed for cash or resources and could even offer the Houthis a better deal. Presently, they may consider it more convenient to keep the softer approach toward Tehran.

For if nuclear talks with the West break down, Iran's regime may become more aggressive, and as experience has shown, tensions often prompt a renewal of missile or drone attacks on the Saudis, on tankers and on foreign shipping. Riyadh must have a way of keeping the Tehran regime quiet, in a distinctly unquiet time.

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