Transcript of Aspen Ideas Festival: Conversation with Christine Lagarde
So it is my great pleasure to introduce to you a friend, a trustee of the Aspen Institute, the President and CEO of the Woodrow Wilson Center for Scholars, Jane Harman and our very, very honored guest Christine Lagarde, Managing Director of the International Monetary Fund.
MS. HARMAN: Good afternoon everyone. Can we please give a shout out for Kitty Boone. No way with all affection for Walter and the team, no way this could have happened without her magic. I’m delighted to be back and delighted to be part of the first act. The reason this has happened you may know something happened last week. A big vote, it wasn’t in the United States but Christine was actually coming last year and at the last minute there was a family event and she had to cancel. So we decided she would come this year. A year’s lead time, nothing would interfere with Christine and Xavier coming to Aspen, no way. Middle of last week, I get a text. There’s this vote and if it passes I may have to delay or cancel my trip to Aspen. But it probably won’t pass. I remember the day of, most people thought it had tipped and it wouldn’t pass. So at 4 a.m. on Friday the junkie that I am, I turn on my television. At 5 a.m. text from Christine. Cherie, I have two emergency meetings. I have to delay and may have to cancel my visit to Aspen. So I thought she did predict this, how sad. So I cancelled a bunch of things but headed to Aspen anyway. Landed in Aspen to find that she managed to come and has to leave early. So Walter had this brilliant idea that we would hold this event early and the 800 of you who are in the first session get the whole advantage of this and so do I.
So Christine Lagarde is a dearest friend. I’m totally objective when I say she is one of the most admired women on the planet. Do we agree? She was just elected unanimously, get that, to her second five-year term as the [Managing] Director of the IMF, the International Monetary Fund. The first woman to hold that position. She also was the first woman to be Finance Minister of a G7 country. She also was the first woman to chair a major international law firm. Not bad.
So the markets are opening in Asia, I believe I’m correct and there are Brexperts everywhere.
A new word, I read it, I didn’t make it up--who are saying catastrophe, the UK will fall, the EU will fall, the UK has opportunities, the EU has opportunities, these countries will leave so on and so forth. The markets obviously were down on Friday. My first question to you my friend is, is Brexit a catastrophe or an opportunity or both?
MS. LAGARDE: Thank you very much Jane, for this easy one. And thank you very much on behalf of my husband and myself I’d like to really thank the Aspen community. We’ve been here for less than 48 hours and we’ve only met lovely, nice, warm-hearted, welcoming, hospitable people not to mention of course Jane and Bob my friends. But really thank you so much; it feels so good to be here.
Jane, what I thought I would do is just start with a few numbers and put things into perspective a little bit because there is a lot of either short memories or rush to a few conclusions which I think is not necessarily the wisest thing to do at the moment. So looking at numbers a little bit I think we have to keep in mind that the European Union, which started being constructed over 50 years ago, represents roughly 500 million people and is the largest free-market economy in the world. That’s what the UK is considering at the moment. The UK itself is a country with over 60 million people. A GDP per capita at around 45,000. A pretty good track record of economic policy in the last few years with unemployment down at about five percent. Growth ranging from 2.2 to 1.9 and up and public finance that have been largely reestablished and a good direction in terms of debt to GDP. So that’s the economic situation of that country at the moment. I’m saying that with particular purpose which will be as you will understand the questions that I have at the end of my quick look around.
Second set of facts which I think are important is that on Friday as we all sort of woke up to this news which was heartbreaking for those of us who are truly Europeans and certainly it was very much my sentiment as a European. But when we woke up, we realized that first of all the markets had vastly underestimated the outcome and contrary to what I hear all the time from my teams which is essentially markets usually get it pretty right and anticipate reasonably well. On this particular occasion whether it was a book maker or the markets that was not anticipated very much which will explain something that I will say in a minute. That’s point number one.
Point number two it might just be the case that the experts, much criticized including by Justice Minister Gove they just might be right and it is not necessarily going to be the best news in the world.
Third, on that Friday in the course of the day there was no panic, right? And despite the fact that markets had not anticipated that vote and therefore had priced in asset values and other currency values, the fact that the UK would probably remain which led to a nice increase on the markets in the days preceding the referendum but despite that there was no panic. There was a violent, brutal, immediate massive move. The pound went down by 10 percent. It caught up a little bit later on in the day. The valuations went down in many corners and some people lost a lot of money, other people made a lot of money as is often the case when there is massive volatility. But there was not panic, and the central bankers did the job that they were prepared to do just in case which was to put a lot of liquidity on the markets so that there would be shortage of liquidity and no sort of fading away of those liquidities as we saw it on previous occasions particularly in 2008.
So that’s the first take. Central bankers did their job. All groupings, organizations, imminence, policymakers came out publicly along the same lines of trying to reassure that the situation was under control and it was very much under control. We didn’t see those sort of panic moves.
Now having said that, clearly what we are facing in terms of and I’m coming to your question, risk opportunities, or threats opportunities I think needs to be distinguished in terms of short term, longer term. And we have done a lot of forecast analysis as have many other institutions and our conclusions which I have shared with British public opinions not too much success was that the outcome would not be a very happy story for the British people. Both in terms of trade declining, in terms of productivity, probably declining, in terms of income, in terms of inflation and so on and so forth. But very much of that outcome which is not terribly precisely predictable is going to depend on the level of certainty or uncertainty. Predictability or lack of predictability. So I think that at this point in time, policymakers both in the UK in Europe are holding that level of uncertainty in their hands. And how they come out in the next few days is really going to drive the direction in which risk will go. Now we are hearing at the moment, and I’m not inventing it, different statements going a little bit in many directions. There is uncertainty in the political party situation in the UK both in the Labor and in the Conservative party. There is a timetable that has been announced under which this referendum which was legally of an advisory value is leading to the resignation of the Prime Minister which will only be effective at the time when he is actually replaced by his successor who will be appointed by the conservative meeting which will take place probably after the holiday which will be in the course of September. So early October, we will know who is the next leader of the conservative party. In the meantime, Prime Minister Cameron has indicated that he was not going to trigger this famous Article 50 of the European Treaty which provides for the terms under which a withdrawal can be actually notified and organized. But there has been no withdrawal from the European Union except some 30 years ago by Greenland which left from Denmark literally. There is no precedent. There is no real history of how these things happen.
So certainly from our perspective as the IMF, we have very strongly encouraged and will continue to encourage the parties involved to actually proceed with this transition in the most efficient, predictable way in order to reduce the level of uncertainty which will itself determine the level of risk that we are facing. Having said that, in the long term if the decision was maintained and if the leave if effectively followed through by the withdrawal from the United Kingdom there is no doubt that it will have an economic impact on that economy and it will also have an economic impact on growth in the European Union. So policymakers are going to be in high demand to come in the most cohesive, concerted and hopefully positive way in response to the situation.
Final point and I think this is something that does not apply only to the UK and the European Union and the Euro area is why and I think those are the questions that will come to the floor not just in the UK. But why is it that the populous voices sometimes based on so-called truth that they now have to retract. Why is it that those voices carry a lot more and a lot further than the voices of “experts” who are largely unanimous about the outcome and consequences of the decision. That’s a big question to ask. Is it an issue of the economic outcome? Is it an issue of the democratic process, is it an issue of the communication channels? But all those questions I think are on the table and warrant everybody’s attention.
MS. HARMAN: Well there is another dimension to that for those of you and you’re all junkies so you all know this who have studied how the vote went. Millennials by a large amount voted to remain and here is just a summary of a post that many of you probably have seen which has gone viral by somebody named Nicholas. He said the Brexit vote is three tragedies. First the working classes who voted to leave will be hurt the most. Second the younger generation will have never known the full extent of lost opportunities and he says literally freedom of movement was taken away by our parents, uncles and grandparents in a blow to a generation already drowning of the debts of our predecessors. And his third point, which is searing, is that we now live in a post factual democracy and that’s exactly what you said Christine. And he asked when was the last time a prevailing culture of anti-intellectualism led to anything other than bigotry? So after you’ve absorbed that, there’s a lot of buyer’s remorse out there. Three and a half million people have signed a petition to hold another referendum. Given the fact that the formal exit isn’t triggered, do you think there is any chance that “can’t you take a joke” will be operative?
MS. LAGARDE: It is really hard to speculate but the sleepy lawyer wakes up inside myself and –
MS. HARMAN: I’m still asleep, my lawyer.
MS. LAGARDE: But I don’t think that it’s there. Although you could argue that with an advisory capacity and the sort of general uncertainty about the timeline about the triggering point, about the two years’ timeframe within which negotiations must be conducted, there is room for revision. But I just don’t see it personally and I certainly don’t want to be quoted on that because it’s very much up in the air. And it is by the way for the UK to actually decide for itself at the end of the day and that country is the only country that can actually trigger the mechanism.
MS. HARMAN: Right.
MS. LAGARDE: No matter how much the EU leaders insist on it being conducted very diligently it is the UK that can trigger the Article 50.
MS. HARMAN: Let me ask you about leadership in the context of Brexit. You’ve mentioned the need for a steady hand but the World Post which is part of the Huffington Post something that I think is a very good piece of journalism wrote yesterday that there are only two compelling leaders in the world. The Pope and Yo-Yo Ma. And I’m actually very partial to Yo-Yo Ma since he was once the harmonizer artist in residence at the Aspen Institute and a dear friend. But who could lead Europe through this? What steady hand is in Europe? Angela Merkel comes to mind, so do you.
MS. LAGARDE: Well Angela Merkel comes to my mind for sure. But you see I think on this occasion it is going to require concerted efforts on the part of many and it is not going to be and I don’t think that it can ever be just one single leader, takes it all, drives it all. It is too multifaceted to be just the work of one single person. And whoever will be driving that bus will actually need to have all the passengers on board in order to move forward.
Europe is an incredible construction, much criticized. Much too slow, very laborious on occasions but it is also an extraordinary achievement of the immediate aftermath of the second World War where countries had been at each other’s throat and millions of people had died at the hands of each other for centuries. And to actually decide that in the name of peace and prosperity they were going to establish that free market zone where product, service and people can actually move, is something that should not be wasted at all. And it is a resilient construction and a resilient territory which is unfinished and which needs to be completed. It is facing a lot of hardship, let’s face it. If you combine the legacy of the financial crisis which is still out there in some corners you look at the terrorists’ attacks which has been the victim of in the last year and a half to look at the refugee’s inflow which is arriving on the shores of many of the southern countries and moving up all the way to Sweden. If you now take this first ever attempt to withdraw when the whole process was about integration, was about coming together, it is a lot to take for a construction that was not inherited from the Westphalia Treaty but something that was only the second World War construction. But it will take more than one person but it will take certainly somebody who has the ability to bring together people for the moment a very different vested interests.
MS. HARMAN: Well you mentioned terrorism and that’s my last Brexit question. It occurs to me that to quote Gerry Ford we have to be able to walk and chew gum at the same time. And as people are preoccupied with this as everyone should be certainly in Europe and I think no matter what Donald Trump says I think is a matter of great interest for the United States as well. There are preposition foreign fighters in Europe and there is Vladimir Putin up north who has already made excursions into Ukraine and is at least many NATO countries fear what else he might do. While Europe is focused on this would this be unfortunately a good opportunity for some of those folk’s attention is being paid elsewhere to conduct mischief?
MS. LAGARDE: I pray that is not the case, I really do, I really do. There is certainly a great level of integration at the economic level that needs to be perfected, that needs to be completed. I think that in terms of security there has to be further work and more in depth work to be done within the European Union.
MS. HARMAN: Well Christine, turning to a few other subjects and then we’ll get to audience questions. You were recently in Japan for a meeting of the G7. Every time I check because I do get these texts from you and invite you to dinner you’re in Kazakhstan or you’re going somewhere but you have been focusing, I know, in addition to Kazakhstan literally on Ukraine, Iraq, Egypt. Endemic corruption is a huge concern of yours. Just a few words about other things you are doing or you will be doing while you are also in this position managing or helping to manage the Brexit crisis.
MS. LAGARDE: Thank you to asking me that question because I have to look at the future and look at it as positively as I can. In my first few years, I tried to shift a little bit together with the management team, the IMF in the direction that was a bit unconventional and not especially orthodox. We have really focused on some alternative topics that are micro critical all the same but that include the likes of climate change, what do we do about it, empowerment of women, what do we do about it, financial inclusion, what do we do about it, excessive inequality, what impact does it have on growth, and those are areas that I think actually matter enormously. Not only for macroeconomic purposes, not only to have a good and solid set of fiscal principles but also because they actually bring the level of hopefully more security, more inclusion, less inequality that actually repair or support and strengthen the chemistry of societies. This is particularly relevant at this point in time. Because I think that some of the answers, some of the analysis in relation to these topics are critical for people. I don’t think that we have communicated well enough or clearly enough leaving aside the jargon that economists and other use. But I think that I would like to continue to push the institution in that direction.
Our focus is economy. Our focus is stability and I think those are the basic principles upon which societies can actually prosper and be developed. But it can only be done on solid pillars and with the principle of inclusion being first and foremost. And it is with that concern in mind that I believe that the work we have begun doing on corruption is very important. How much corruption would present in the world, anywhere between $1.5 and 2 trillion. How many countries are concerned, many. And not just the odd country down south in this sort of low income development country. Who are the victims? Generally the most exposed people. Can it be fixed? Yes. Will it take time? Yes. Will it require cohesion and leadership? Yes, of course. Will the transition from an economic point of view need careful analysis and policy advice? Absolutely. You don’t go from a nicely oiled system that is built on bribes and rigged procurement contracts to something that is transparent and where people are accountable without a degree of transition. So those are some of the areas that I would like to continue to push along with exceptional quality of research and service to the membership.
MS. HARMAN: My final question is growing up in France where you a synchronized swimmer and going to the United States for a year I think at Holton Arms and being an intern for then Congressman Bill Cohen. Then this school and teaching and this flaunted law career, did you ever imagine that you would be here now in your second term as the Director of the IMF?
MS. LAGARDE: No, no, absolutely not nor did I plan for that actually ever but no,
MS. HARMAN: Well all I can say is aren’t we glad she’s there? So questions and one I would like to call on Kitty Boone whether she wants to be called or not I hope she’s here. She’s there because Kitty has come up with I think a great idea about Greece and I think you ought to put it to Christine Lagarde.
MS. LAGARDE: I’ll take any of those.
MS. BOONE: I’m now mortified. Okay here is my idea but I don’t know how to turn it into a question. Maybe you can say does this make sense, is it possible. The Greek economy is a disaster.
The debt now is a huge question. Rio for the Olympic Games is a disaster. The IOC, the way they make decisions is really complicated. Could we please permanently install the Olympic Games in their home in Athens and give economy and tourism and strength and have one place that’s environmentally safe. You don’t have to build stadiums that have dust weeds right after the day and help Greece and help the world find a place in Europe that is a legitimate home for the Olympic Games. That’s my question.
MS. LAGARDE: I think it is a great out of the box idea. Thank you Kitty, thank you. To the extent that it’s going to create demand which is what this economy absolutely needs it would be great. How you combine the sort of single location with the multilateral, multicounty extraordinary sort of appeal that the Olympics can have too many countries around the world is something that needs to be thought through. How you could have a good governing body that would actually supervise, make sure that there is transparency, there is accountability, there is no funny business as has occurred in the past in some places. But is a very interesting idea and you’re right. The marathon was run the first time even in Greece and the Olympic is only called the Olympic because of Mount Olympus which is actually sitting in Greece and has hosted so many fantastic athletes which was part of the healthy principles that the Greek’s very much had.
MS. HARMAN: So Kitty has the first big idea of the afternoon. Other questions?
MR. ABERNATHY: Bob Abernathy. Thank you for being here with us. You said a minute ago that much work needs to be done in security in Europe. What would you set for an agenda for the meeting in Warsaw next month?
MS. LAGARDE: I’m totally out of my depth on that one. So I don’t pretend to have any recommendations or any lessons to those who are in the know. I was in November in Paris at the time of the attack on Bataclan. I walked the streets of Washington just recently and all I can tell is that it is going to require concerted efforts at all levels of organizations, societies and not just at the police and intelligence levels. I think people have to be adopting a different view about security themselves.
MS. HARMAN: The meeting in Warsaw is a meeting of NATO members for those who don’t know. Questions, over there on the aisle.
QUESTIONER: I am a Pearson Scholar. I am originally from Nigeria. In January you visited my home country and you said you advised the Nigerian Government to act with resolve, build resilience and exercise restraint. These are your three words. And with Britain leaving the EU as an emerging economy that solely depends on oil and most of our stock is tied with pounds, tied with dollars what advice do you have on an emerging economy such as Nigeria and other African countries who are battling with climate change, battling with migration and other things, thank you.
MS. LAGARDE: Well first of all what I can tell you is that I was very, very pleased to see the exchange rate new policy that has been decided by the Central Bank of Nigeria. And I’m delighted that President Buhari has agreed to that change as being part of the overall Nigerian policy. I think it’s a move in the right direction. Clearly your country is a massive producer of oil. It is not the only country to some of countries that are visited earlier as you mentioned Jane, it is a country that actually has other sources of growth that is far more diversified but where resources are predominantly particularly the revenue for the state of Nigeria from oil. The fact that it is heading in the more direction of a more flexible exchange rate I think is so wise and so much better than what there was before. So I think on that front the country is heading in the right direction. Diversification of sources of growth is a critical one and I think the fight against corruption is something that President Buhari himself who was present at the London Summit against corruption has devoted his energy and efforts towards and it needs to be continued, we need to support him in helping along the way. But fighting against corruption, diversifying the economy, making sure that there is growth in the country in order to create jobs for the Nigerian population particularly the young people on the basis of a monetary policy and an exchange rate that is more variable then it was before. I think hopefully will position the country in a much better shape for the future. It is the largest economy and certainly the largest population in Africa. The rebasing of the economy is certainly demonstrated. I hope it heads in the right direction.
MS. HARMAN: Over here, let’s see Elliott in the front row.
MR. GERSON: This is Elliot Gerson of Aspen Institute. I’d like to return to Nicholas, the young man who wrote the letter in the Financial Times that Jane referenced that went viral. About three quarters of Britain’s under 25 voted to remain and they have the most at stake. Almost as many voted the other way who are retired and who have the least at stake. What specific message do you have for Nicholas and his young contemporaries who seem to be now in a state of national depression?
MS. LAGARDE: I think many of them went to vote but many of them actually regret today that they have not for some reason. Clearly the future of their country is going to belong to them more than anybody else and I hope that they can move in a positive direction. They can be hopefully guided and I say that with trepidation because I think that we are seeing massive changes and the assumption that somebody is going to guide them is maybe very full of vanity in a way. I think there is very much a desire of I want to take my destiny in my own hands. I want to be able to communicate and I don’t really understand what those intermediaries however democratically elected and representative they’re supposed to be are going to do with my future. So I think we need to ask the right questions, try to find together the right answers. I think for the next couple of years it is going to be a difficult moment. That’s the time it will take to conduct negotiations and see under what terms the country withdraws. If it does as presumably it will and whether it will take the direction of Norway which as you know has an economic arrangement which authorizes them to actually transfer goods and services without restrictions but also requires that they pay their contribution to the European Union and that they open their space to movement of people. That would be probably for those young people the most comforting outcome. I’m not sure that it will be perfectly satisfactory to those others at the other end of the age spectrum because you end up as actually the authorities of Norway was telling me 10 days ago with paying the bill, not having a say on the regulations and forcing the regulations and opening new territories. But a Norway-like arrangement would be probably the best outcome both in economic terms and in response to the concern of Nicholas and all his friends.
MS. HARMAN: Anybody in the back, then in the front right here. Just wait for the mic and identify yourself please.
MS. LAZARE: Nancy Lazare. What policy advice would you give the leadership of Italy and Spain and maybe even France to reduce the odds of a referendum vote in those countries?
MS. LAGARDE: I would stick to (inaudible) things and I would say put in place the policies that will actually lift economy that will create demand, that will generate growth, that will create jobs and that will bring a bit of an uplifting sentiment around the country. I’m saying that I’m sticking to (inaudible) because I think that is a really important message. What have we had so far. We’ve had terrific monetary policy authorities. The central banks have carried the burden very much on their back with little support on the part of fiscal and the part of structural reforms. I think if anything that should be a strong wakeup call to those authorities to actually drive forward that agenda that we have called the three pronged approach. Structural reforms, fiscal space used please and whatever fiscal policy you have in place make sure that they’re growth friendly and have the monetary policy in the background to continue to help and support. And that is perfectly legitimate but it cannot be on its own. So that would be my strong recommendations. Turn your country and your economy towards positive, towards demand, towards growth and make sure that instead of having 10 point something unemployment growth, unemployment rates in those territories you move the needle in the right direction, you create hope, you generate confidence.
MS. HARMAN: I can’t underscore positive and hope. Just imagine if the REMAIN campaign had been based on positive and hope what the result might have been. Last question, way in the back over there.
QUESTIONER: I am a British citizen both heartbroken and in mourning.
MS. HARMAN: Did you vote?
QUESTIONER: I am not allowed to vote because I’ve lived in America for over 14 years and they take away your vote when you’ve been expat for 14 years in the UK though I would have clearly voted to remain. My question is assuming the British government does withdraw from Europe do you expect the European Union to be very harsh not to say punishing in their negotiations as a way to dissuading other people in the domino effect that we’ve been hearing about or would you expect any form of compassion?
MS. LAGARDE: I personally don’t believe in the virtue of punishment in many instances. I think encouraging, supporting people to head in the right direction is probably a lot better. Equally I recognize the dilemma that the European leadership has being overly warmhearted in those negotiations and discussion is certainly not going to help in to deal with the risk that is out there, not only of reduced growth but of potential fragmentation that would result from a contagion effect. So how they find equilibrium between being rigorous and being fair is something that I hope is best exemplified at this point in time by Chancellor Merkel who has gone on saying there is no need to be nasty with the British. I’m almost hesitant when I say the British because when I see what Nicola Sturgeon from Scotland is saying I’m concerned that we are not even talking about the British. We’re talking about very much the English, the Welsh. Ireland is going to be also a big question mark going forward. But I hope that this equilibrium point is going to be sensible enough to not harm unnecessarily and try to get a revenge against the English and others but also is not going to be encouraging for others to look for similar situations.
MS. HARMAN: So on that note this is Christine and Xavier’s first visit to Aspen. Should we invite them back?
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IMF COMMUNICATIONS DEPARTMENT