Lessons from Lagarde - St.Gallen Symposium

Christine Lagarde, Managing Director of the IMF, gave a rare 50min long Q&A session at the St.Gallen Symposium. Tough questions regarding the survival of the Eurozone, whether the IMF is in fact the World Government, and others pertaining to global policy decisions were posed. Lagarde is aware that the current system is flawed, especially when she goes silent to the mention of some smaller countries within (or thinking of joining) the Eurozone, and whether or not they should be involved in such a collective group that is clearly not working for the generation of unemployed youth.

The argument is that the Eurozone in its current form, is not sustainable; which is why it must continue to evolve with not just increased oversight, but an improved structure that is quick to realize problems in its critical banking system. With that foundation, according to Lagarde, structural problems should be addressed on an individual basis - no one size fits all approach. The conversation shifted to austerity and whether or not it is acceptable to call it a failure; especially given that it was pushed by the IMF for nearly all constituents in its program last year. 

Austerity was not balanced, and it is true that the results show a prolonged economic dip instead of painting a path to recovery like many officials hoped for. The quick and painful cuts and higher taxes just to receive the next credit tranche was the problem. Now Lagarde suggests a slower pace of austerity in which structural issues are addressed for the long term. This is how it should be done, and frankly the pressure of competing authority with the Troika and IMF rushed a lot of these fiscal snaps. Hopefully with some time granted after the German election, we could see some organizational structure and better thought out policy on the country level. Lagarde says the same stands for the US in its austerity measures, although we still don't have a sensible budget in place to do so. 

Lastly, Lagarde's comments on Japan were interesting. Abe's promise of structural change seems like the best approach, but the monetary side still leaves many in question. Lagarde would like to see better utilization of Japanese talent - particularly women. The demographic imbalance in Japan is very worrying and will definitely skew the dependency structure. 

-- Also, the third prong approach of the IMF caught my attention. Providing technical assistance to emerging countries for better surveillance of their financial markets is a key investment. That sums up a few main points, but the full video is definitely worth watching.