Poor Christine Lagarde. Even as the IMF managing director seeks to drum up new resources for the Fund to help prevent a European meltdown, senior U.S. officials keep signaling a distinct lack of enthusiasm.
Lagarde has argued repeatedly that the IMF needs to boost its lending capacity to nearly $900 billion and has been making that case around the world, including in Saudi Arabia, South Africa, Brazil, China, and at Davos. Lagarde acknowledges of course that the onus is on Europe to craft a more robust response, in particular by merging the two bailout funds Europe has already created. And she's certainly not keen to accentuate any differences with the United States, the IMF's largest shareholder.
But the differences are impossible to ignore, and this weekend's meeting of the G20 highlighted them. Treasury Secretary Tim Geithner repeated the administration's mantra that substantial IMF action would be premature. Via Reuters:
"There is broad agreement that the IMF cannot substitute for the absence of a stronger European firewall and the IMF cannot move forward without more clarity on Europe's own plans," Geithner said.
The U.S. Treasury chief repeated that he was not prepared to go to Congress now to seek more resources for the IMF because he didn't feel they were needed at this time.
He declined to say how big a financial firewall he felt Europe needed to put up now but noted that, in order to be credible in markets, it had to be bigger relative to possible claims that might be made on it.
For her part, Lagarde appeared to acknowledge this weekend that her dreams of a much bigger IMF war chest won't be realized any time soon. "Raising significantly the firepower of the IMF is not something you can do by flicking your fingers," she said.
What's at work here are different responsibilities and political realities as much as different economic analyses. Senior IMF officials have a responsibility to the international system as a whole and do not face the political pressures politicians do. The IMF appears to have accepted that Europe, for a host of architectural and historical reasons, may be unable to devise its own solution to the debt crisis in a timely manner and are determined to put a backup system is in place.
My sense is that U.S. officials share those fears, but they face the countervailing political reality that Congress, not to mention Republican presidential candidates, would howl about new U.S. funds to "bailout" Europe. And that makes all the difference. Because of immediate political pressures, the United States is willing to run the risk that there simply won't be a firewall. Lagarde, as steward of the global financial system, is much less comfortable doing so.