In November 1976 Jim Callaghan faced a sterling crisis which forced him to apply to the IMF (International Monetary Fund) for a £2.3bn rescue package. At that point it had been the largest ever call on IMF and as part of its conditions the IMF requested massive cuts in public spending. The ship steadied and the UK entered the Thatcher years shortly thereafter. The rest is history.
But let’s take a look at the Cavalry shall we?
It’s called the IMF.
It was formed at the end of WW2 and designed to stabilise international exchange rates and facilitate development through the influence of neoliberal economic policies in the forms of loans, debt relief and even aid to countries especially in the Third World. There are 187 member states or members working to foster global co-operation, secure financial stability, promote high employment and sustainable economic growth and reduce poverty. Each member has a quota and vote on all major decisions requiring an 85% supermajority. Now this is where it gets interesting!
The following countries have been running the IMF helmed by the incumbent Managing Director at the time (when UK went “cap in hand” in 1976 the MD was a Dutchman); 1946-1951 Belgium, 1951-1963 Sweden, 1963-1973 France, 1973-1978 Holland, 1978-2000 France, 2000-2004 Germany, 2004-2007 Spain and 2007-to date France. It’s interesting that USA, UK, Canada, Australia and the anglo nations have NEVER had a leader of IMF. With the recent Strauss-Kahn scandal there was a call from the BRICS’s bloc to elect someone from outside the EU as by appointing a European undermined the legitimacy of IMF. In fact they asked that the appointment be merit-based too. As an aside it wouldn’t be understated if one said that the whole undertone of the structure of the IMF might be construed as being biased towards the EU (& France in particular with 5 of the total of 11 MD’s being French); it’s in effect an EU based culture that is prevalent in the IMF.
Now let’s fast forward to the present crisis in the global economy. Christine Lagarde, the current MD (the former Finance Minister of France) has called for cohesion across Europe and global markets and meanwhile is suggesting that a Euros 2 trillion (£1.75bn) fund is created as a firewall around the most indebted eurozone nations. This would allow for an orderly Greek default (the creditors are standing by Christine!) and bailing out the European banks (mostly French banks so the markets believe) most at risk. Note Greece is currently paying 66% interest on its short-term debt.
The scenario unfolding reminds me of the young man who has over-extended his overdraft (unauthorised), requesting that the bank assist him by extending his credit and then is told curtly by the Bank Manager that the bank finances are in a total mess anyway so there’s absolutely no chance of any assistance. Except of course there’s a twist. The young man’s grand-father is the Life President of the bank in question.
Looking at the current IMF make-up, the Eurozone nations % call is:
Germany 6.13% of the quota
UK (not in EU but would have to participate anyway) 4.52%
France (AAA status under watch) 4.52%
Italy (almost bust) 3.32%
Switzerland (not in EU) 1.45%
There are of course peripheral eurozone nations that didn’t make the 1% cut but a guesstimate total of Eurozone % influence within IMF would be 20 to 25% of the fund. So in effect somewhere in the region of Euros 500 billion would have to be paid by the Eurozone to contemplate a loan to itself of Euros 2 trillion. The terms have yet to be decided but it’s likely to look pretty rosy for the recipients, although I doubt the investors/depositors would achieve anything comparable to the current inflation rate. On this basis alone it’s a dead duck, but what I find extraordinary is why any capitalist would think this a sensible approach.
The 3rd November 2011 G20 meeting should be a hoot!