Who wil be the next head of the IMF?

I must start with a correction re M Strauss Kahn's accommodation, it is Riker Island not Sing Sing that may not be up to Chateau d'If standards.

The British Foreign Office is really slovenly when it comes to securing important international posts for Britons. Not so the French. Four out of the eight heads of the IMF have been French. They always have a good candidate lined up. Even just following the downfall of M Khan they are pushing the incomparable Christine Lagarde as next head. And who have we got? Well Gordon Brown, maybe if Dave holds his Lord Snooty nose.

Why is this so important? Well I can express it no better than John Redwood did today and I reproduce his email below.

Mr Strauss Kahn is innocent of the criminal charges brought unless and until proven guilty. It is nonetheless interesting to hear how much the EU and some left of centre broadcasters are said to be missing him and how kind they are about him. As he was one of the leading architects of the Euro bail outs so far, I think he has a lot to answer for regardless of the US criminal case which now envelops him.

It is people like Mr Strauss Kahn who perpetuate the myth that there is an easy way out of the problems heavily indebted Euro members find themselves in. Is it caring to offer the overborrowed nations more borrowings they cannot afford on easier terms? Is it caring to peldge more of the IMF’s money, usually reserved for the world’s poorer countries, to help rich countries that have embroiled themselves in a common currency scheme that does not work? If Mr Struss Kahn is such a financial genius, why couldn’t he see in advance that the Euro had no system for controlling excessive deficits, did not have sufficient transfer payments around the union, and had no agreed system for deciding how to manage bond rates and money printing in a way which was good for all parts of the currency union?

All the current troubles of the Euro were easy to forecast, and some of us did so more than ten years ago. Then people like Mr Strauss Kahn drove this political project through against the wishes of many of the people of Western Europe and against the advice of people who understood markets and had studied the break up of past currency unions that did not have a single country behind them.

Greece is now having to slash public spending in a way people like Mr Strauss Kahn usually condemn because they are locked into the Euro at an exchange rate they cannot handle. Those who wanted the Euro must accept that their scheme has helped cause the extreme cuts. Many Greeks are out of work or facing wage cuts because the Euro scheme does not work for them. Ireland and Spain had property and credit bonanzas thanks to the imperfect design of the Euro system. They are now suffering badly from big credit and property price hangovers.

I do not believe the EU has lost by not having Mr Strauss Kahn at their discussions.His medicine would probably be more of the same – new loans at below market rates, with new tougher and more unrealistic conditions attached.

In the private sector some banking is now called pretend and extend. The banks pretend that the borrower will be able to repay one day, and that one day the asset cover will be restored when the assets go up again in value. On that basis they lend more, or maintain the existing loan, and continue to keep it on their balance sheet. They usually do make some general provisions, so there is a reserve if they eventually have to give up and write it off.

The plight of portions of the banks sovereign debt portfolios is far less rosy, thanks to the regulators and loan extenders. The banks are told that their sovereign loans are risk free and worth what they lent. Lending more should pose no problems. If you look at what the markets think Greek, Portuguese and Irish state debt is now worth, you should at least pause for thought. Those who lend too much to weak sovereigns are undermining the banking system of parts of the EU as well as doing no favours to the states that cannot afford their debts.



John Redwood says it all. That is why the French dominate the EU. They have 4 or 5 times as many EU officials at all levels than the Brits. That is why we always lose out in the EU with the latest cave in from Wee George coming today. Yes, UK taxpayer you will shell out to the Greeks, Portugese and any other country Sarkozy decrees.