As a top official of one of Europe’s most powerful economies, Lagarde has been at the forefront of efforts to contain the European debt crisis, which led Greece, and then Ireland and Portugal, to seek bailouts to help them pay their huge sovereign debts.
A year after Greece secured a rescue package of $140 billion at current exchange rates, the country’s debt problems have resurfaced, posing profound challenges to the IMF, the EU, and the European Central Bank as they try to contain the crisis.
That is no easy task. Global markets have been whipsawed in recent weeks as fears mount that Greece could default on its debts, despite aid from the IMF and its European partners.
Representatives from emerging markets fought to claim the IMF leadership from Europe, which has produced every managing director since the fund’s inception more than 60 years ago. Carstens argued that Europe needed someone who would bring a fresh perspective to the crisis.
But Lagarde convinced her backers that the IMF needed a European at the helm to address the Continent’s deepening debt problems.
Lagarde was initially opposed to getting the IMF involved in Greece’s rescue, seeing it as a problem that Europe’s politicians and policy makers needed to resolve. When the IMF entered the scene last year, Lagarde took a hard line on Greece, at one point threatening to withdraw financial aid if the country did not respect its engagements to cut spending and raise revenue.
Moments after her appointment, she urged the Greek government and opposition on French television to pull together to pass the unpopular austerity measures needed to unlock financial aid and avert a default.
Yet Lagarde has also come under fire from those who say she and other senior European policy makers mishandled the situation from the beginning, and are now scrambling to clean up problems of their own making. Geithner last week chastised Europe for failing to speak with one voice on the Greek crisis.
