Merkel Vs. Lagarde: The Two Titans of the Global Economy

Gone are the times when the fate of the world seemed to depend on pairs of (almost always) male protagonists.

Think of Kennedy and Khrushchev or Nixon and Brezhnev. And even when the rare Queen or Empress — whether a Victoria, Catherine or Elizabeth — was prominent on the world’s stage, there were usually plenty of men around competing with the lady of prominence.

Women: Taking their place on the world stage

In the early 21st century, women are, at long last, taking their rightful place on the world stage. We live not so much in the age of Obama, Newt or Mitt, David or Nicolas, Hu or Wen, but in the age of two female titans — Angela and Christine.

To be sure, there are other prominent and powerful leaders on the world stage who are women, in particular Brazil’s Dilma Rousseff. But none are anywhere near as central to the great challenge of our time — resolving the global financial crisis — than German Chancellor Angela Merkel and the head of the International Monetary Fund, Frenchwoman Christine Lagarde.

When Madame Lagarde still served as France’s Finance Minister (until June of last year), this powerful duo could often be seen standing comfortably next to each other at European or G20 summits, conferring amid a sea of grey suits on how to instill some rhyme and reason into the European or global financial debate.

Late in Lagarde’s tenure as finance minister, however, there were signs of increasing disharmony between Europe’s two most powerful women. Looking at France’s somewhat shaky economic outlook, Lagarde had taken to criticizing the Germans for relying too much on exports.

In this, she echoed claims that the Germans were inclined to “beggar their neighbors” with their export prowess. (Hence the very recent rebuttal by Chancellor Merkel at the World Economic Forum that Germany’s current economic performance relied heavily on solid domestic demand, not exports).

Bringing the Europeans to their senses

But with Lagarde’s move to Washington to take up the post of Managing Director of the IMF, the conflict between the two female titans has broken out into the open. Until Lagarde found her full stride, it was usually the U.S. Treasury Department — and often Secretary Geithner himself — that took the lead the “bringing the Europeans to their senses.”

Whether his advice was welcome or not, he argued before European councils and the public at large for a much more determined response to combat the lingering eurozone crisis.

Now, however, it is Madame Lagarde who has taken over the role of constant critic and nagger of the hesitant continentals. Little wonder then that there is more than a sense among some continentals that the Europeans, in effect, did not hold on to the post of IMF Managing Director.

Rather, they describe the position as being held by somebody with a French passport, but a person more closely toeing the American line. Such, it is said, were the terms of endearment, i.e., the conditions for throwing U.S. support toward the French candidate.

An extension of this line of thinking is that Christine Lagarde is not, in fact, really running the show at the IMF. The real power there is her deputy David Lipton, a former hedge fund manager and treasury department official in the Clinton Administration. In this view, it is he who shapes the policies — while she travels and publicly articulates the IMF’s views.

Lagarde’s American background

Because of her own strong American background (having attended high school in the United States, served an internship on Capitol Hill and worked as the managing partner of a large U.S.-based international law firm), Lagarde might be presumed to have few qualms about carrying the U.S.-approved message.

All the more so because many of the United States’ concerns regarding Europe are not all that different from France’s concerns.

If that were indeed the case, it would be a return to an often-experienced past practice where a European officially presided over the Fund, while the (always American) First Deputy Managing Director pulled the strings behind the scenes.

There is only one big difference: In the past, the core focus of the IMF’s lending and crisis management activities was usually on other regions of the world, whether Latin America, Asia or Africa.

Under current circumstances, it is probably preferable to have a European in the IMF’s top post who is seen by some critics as doing the bidding of the United States, rather than the other way around. Having a European in the post who is perceived as actively maneuvering the Fund to Europe’s benefit would not be seen as honest brokering.

The substance of the matter

The politics of symbolism, clandestine affiliations and innuendo aside, what about the substance of the matter?

On that score, I have a suspicion that the two ladies are not as far apart as it appears, or is made to appear, in public. While Christine Lagarde steadily bangs the drum calling on the Europeans to make more resources available as a safety net to protect the nations in danger, Angela Merkel drums up the need for fiscal consolidation.

In the end, all these elements are only seemingly contradictory and need to happen in some form of unison. The irony is that, in many ways, it is Merkel, not Lagarde, who is doing the IMF’s usual job of stressing fiscal consolidation. Meanwhile, the IMF itself is acting as a countervailing force.

It is as if European decision-making now had two chambers — one in Brussels, where the Germans and their allies have the upper hand, and another in Washington, where the IMF operates as a Southern European chamber. That is what one might call an imaginative international division of labor.