Just two days after Angela Merkel visited Greece to show support for the austerity programs of Greece’s Prime Minister Antonis Samaras, IMF chief Christine Lagarde said that Greece need more time to put its financial house into order. Merkel made her visit to the southern European nation without comment about a specific plan to help Greece become a self-sustaining economy, perhaps because she has none. Her support of the future of the eurozone has been limited by her contention that austerity and higher taxes are the best way for nations like Spain and Greece to recover enough financially to be self-sustaining. At the same time, Largarde said to the annual meeting of the International Monetary Fund and World Bank that, “It’s sometimes better to have a bit more time.” Austerity forced on Spain and Greece will only deepen their recessions.
Merkel’s greatest opponent in the battle between austerity and stimulus was supposed to be French President Francois Hollande. But he has had to balance his nation’s own budget to some extent by cuts in government spending and higher taxes, particularly on the rich. He is no longer in a position to argue for stimulus programs that he cannot put into place in France. Merkel’s opposition from Hollande has almost completely disappeared.
But Largarde has no national budget to balance and no sovereign debt trouble. She has to justify how the IMF loans its money, but so far her efforts to help Europe have been supported, particularly as they are done in concert with European Central Bank and European Union efforts. She only needs to read her organization’s new October 2012 World Economic Outlook (WEO) to see how quickly the global economy could move back into recession.
Germany continues to harden its position about how and when aid should be given to its neighbors, no matter what Merkel says in public. The Bundestbank remains the sole opponent of the bond-buying program being pressed by the ECB to bring down interest rates, particularly those paid on sovereign paper. That opposition, linked with insistence on austerity, stands almost completely against Lagarde’s new position.
Merkel has only one powerful challenger now, and it is Lagarde, an interested party but not one who has to worry about the interests of any one nation.
Douglas A. McIntyre