New boss

In the end it turned out just as most observers expected: the Executive Board of the International Monetary Fund named the 55-year old French Finance Minister as the future Managing Director on Tuesday. Anything else would have been a big surprise. It is of course the right of the emerging and developing economies to suggest a candidate from their ranks. No one doubts that Lagarde's main competitor - the Governor of the Bank of Mexico, Agustin Carstens - would have had the ability to lead the Fund. He's already served as one of the IMF's Deputy Managing Directors.

Nevertheless, the reasoning that the new IMF Managing Director must come from an emerging nation because this reflects the new balance of power in the world economy, doesn't match up with economic reality. The IMF isn't just the United Nation's financial fire brigade, it's also a relatively reliable and believable source of data. Its statistics show that the G7 states - France, Germany, Italy, Japan, UK, USA and Canada - make up 49 percent of the global economic output. The BRIC nations - Brazil, Russia, India and China - manage just 18 percent.

Europe has more weight

European Union nations account for a quarter of the world's global domestic product, China for nine percent. Despite the dynamic growth in China and in other emerging economies, the European Union still has considerably more weight. Economic arguments therefore were never able to justify the exclusion of a European as head of the IMF.

But that is all water under the bridge now. The rift between the industrialized and emerging nations seemed to be a media invention anyway. These were battle fronts that never existed. How else could it be that Canada, not exactly an emerging economy, initially supported Mexico's candidate Carstens, while China wanted Lagarde to get the job?

Water under the bridge

These are indeed battles from the past. In principle it's not important whether a Mexican or a European is at the head of the International Monetary Fund. It's much more important that the IMF returns to its daily business and shows leadership again, just like it did during the global financial crisis of 2008. Back then the fund played an important role in the political discussions about the management of the crisis, and it also saved a number of European nations from bankruptcy, including Iceland, Latvia, Hungary and Greece. A third of the emergency loans to these nations come from the IMF, although the organization is only a junior partner when it comes to discussing financial reforms in the recipient countries.

A Mexican wouldn't have been able to manage an about-turn on policy, just to appease the emerging economies. After all, it is the job of the IMF to help nations in trouble, irrespective of whether they are in Europe, Asia or Latin America. Whether with a Mexican or a European at the top: these days, where national debt crises can quickly turn into global financial ones, the IMF has a crucial role to play.

Author: Rolf Wenkel / al
Editor: Michael Lawton