What should Christine Lagarde do on Day 1 as managing director of the IMF?

 "I, Christine Lagarde, solemnly swear that I will neither seek nor accept any public office -- elected or appointed -- in France, or in any European agency or institution, for a period of five years after leaving my post as managing director of the IMF."

Issuing an oath of that nature should be the first order of business for Lagarde. She comes to the International Monetary Fund as the chosen candidate of her fellow European policymakers, just like all of her predecessors, under the selection system that has prevailed since the IMF's establishment. Anachronistic as that system is, it is particularly pernicious in Lagarde's case because of the clear conflict of interest presented by the crisis in the eurozone. The European politicians who anointed her have enormous stakes in seeing the crisis resolved in ways that benefit them politically, whereas the IMF's task is to promote a credible approach that will resolve the crisis sustainably. It is all too easy to imagine how these interests will diverge as the crisis develops; arguably, they already did when Dominique Strauss-Kahn was heading the IMF while simultaneously planning to run for president of France.

The question of whether Greece's debts should be restructured is just one case in point. Europe's power brokers quailed at the prospect that the losses inflicted on their banks would require them to pour more taxpayer money into their financial systems, and they desperately scrambled for solutions that would defer the pain, however inevitable it may be. Is that the best in the long term for Greece, for Europe, for the world? I don't think so, but regardless of the pros and cons of that particular argument, the point is that the IMF needs to show that its policies are as free from short-term political considerations as possible. Its most important asset is not its money but its credibility, and if it is perceived by financial markets as little more than Europe's tool, its effectiveness in restoring confidence will be severely curtailed.

Lagarde should do everything in her power to eliminate doubts about where her loyalties lie. When Europe united behind her candidacy, I argued that her selection would be a travesty. I haven't changed my mind, but at the very least she should forswear the ambition to hold any office for which she would depend on the support of European leaders or voters. She may be morally obliged to take steps that will make her as unpopular in Europe as previous IMF chiefs have been in places like Brazil and South Korea. She must show that she is prepared to do so if necessary.

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  • Paul Blustein is a CIGI senior fellow. An award-winning journalist and author, he has written extensively about international economics, trade and financial crises.