A damning report by IMF watchdog the Independent Evaluation Office has slammed a “culture of complacency” in Christine Lagarde’s organisation. Focusing on the IMF’s response to the Eurozone crisis, the report claims that the Fund was riven with “issues of accountability and transparency”, claiming Lagarde and senior management established “small, ad hoc staff task forces” to plan for the possibility of bailouts, rather than holding executive board meetings. The report slams the “lack of board involvement”, with management failing to discuss – sometimes despite direct requests – issues around the unfolding crisis. Preparations made by management lacked “analytical depth, rigor, or specificity”. Most damning of all, however, is the IMF’s “groupthink” and unquestioning links to European policy – particularly their irrational fervour for the Euro. The report concludes:
“At the euro area level, IMF staff’s position was often too close to the official line of European officials, and the IMF lost effectiveness as an independent assessor.”
So much for that independent report, eh Remainers?
Pro-Remain minister Ed Vaizey repeatedly dodged Brillo’s question about which, if any, economists think Osborne’s tax-hiking spending-slashing post-Brexit budget would work. Accused of “filibustering” to avoid an answer, Vaizey then launched a bizarre attack on the Remain backing IMF’s economic credibility:
“You know full well over the last six years when George took decisions about cutting spending and raising taxes organisations like the IMF told him he was playing with fire”
At times Vaizey was literally laughing at the less than credible lines he was sent out to spin…
Osborne says the IMF’s Brexit-bashing report is totally impartial: “Today the independent IMF reinforced the conclusions of the independent bank of England.” So it’s unfortunate that ChristineLagarde began by thanking the Treasury for their help:
“Let me by the same token thank all UK authorities who have been helping us in preparing the article for work in the last few weeks. There’s always been good cooperation between the Treasury, the Bank of England and any other authorities that we consult with”
She was then forced to deny the Treasury wrote any of the report. Ooooops!
IMF chief Christine Lagarde – currently due to stand trial over a €400 million fraud case – has been spinning overtime that Brexit will damage the UK. This is merely a geo-political courtesy return favour to Osborne who campaigned hard for her to get the IMF chief’s job.
In reality the IMF figures predict that UK growth will outpace both Germany and France as well as the Eurozone as a whole. Even the short-term initial Brexit effects are marginal, and the Bank of England will stand ready to flood liquidity into the markets in the event of Brexit, which will have a soporific effect on markets. No credible economic forecaster expects any long term negative effect on growth…
New figures published by the IMF yesterday report Britain’s government deficit this year will still be bigger than Greece’s. The UK’s deficit in 2015 will be 4.25% as a percentage of GDP – Osborne’s preferred metric – while Greece’s will be 4.17%. The only advanced economy with a higher deficit than the UK this year is Spain…
Before the election Osborne was skewered on how Britain’s deficit compares with Greece in his worst TV appearance of the campaign. For all the talk of austerity and swingeing cuts to tax credits, the Chancellor has failed to meet his deficit targets or match the rest of the developed world…
Chancellor Zero is no more. Growth is back, even the neo-Keynesians at the FT and the wonks at the IMF can’t deny that the UK expanded faster than the rest of the G7 last year and will probably do the same this year. George Osborne is in Washington today to gloat that
“despite warnings from some that our determined pursuit of our economic plan made that impossible. All of this demonstrates that fiscal consolidation and economic recovery go together, and undermines the pessimistic prognosis that only further fiscal stimulus can drive sustainable growth. Indeed that is precisely the wrong prescription for our economies…”
Ed Balls got it wrong is the core message. Labour will point to per capita GDP which is still 10% lower than it was in 2007 – that will be a second term objective for the Chancellor. Balls will less convincingly say George has missed his deficit target, less convincing because Labour would have missed it by more and opposed almost every measure needed to reduce the deficit. The neo-Keynesian argument that higher unemployment would increase the welfare bill and thus the deficit has been proven to be wrong. Unemployment is down from what it was under Gordon Brown, with the warnings from the likes of David Blanchflower of 4 to 5 million unemployed having turned out to be political hyperbole that has fatally damaged his career as a sage. That “expansionary fiscal contraction” that left-wing wonks and economists said would never come is entering a third year…
Leading left-wing wonk and wannabe Labour MP Will Straw argued in 2011 that Britain’s economy faced the risk of a Japanese-style “lost decade” and that “expansionary fiscal contraction” was a “voodoo theory”, and even that“there was no such thing as an expansionary fiscal contraction”. In 2011 Guido argued the point at length with Will on the BBC’s Daily Politics:
Having failed at the time to get an on-air apology from Will for his role in Gordon Brown’s Treasury, three years later he must now accept that he was wrong about a lost decade and wrong that there was no such thing as an expansionary fiscal contraction. Over to you Will – as growth is expected to hit 3% you have a second chance to offer an apology…
This £10 billion bailout for the IMF brings the total Osborne has pledged to £40 billion, or some £666 for each and every man, woman and child in the Britain. In October last year after British taxpayers sent £9 billion to the IMF – £9 billion that Osborne had to borrow, Osborne told the House of Commons categorically:
“Britain will not be putting money into the bail-out fund either directly or through the IMF…. The IMF exists to support countries, it does not exist to support currencies… The IMF contributing money to the eurozone bail-out fund, no; Britain contributing money to the eurozone bail-out fund, no. That is Britain’s clear position.”
The Chancellor could not be any more clear, he gave his word, it was an unqualified promise. Which Osborne has now broken.
George Osborne gave a cast iron promise last October:
“Britain will not be putting money into the bailout fund either directly or through the IMF… the IMF exists to support countries, it does not exist to support currencies. The IMF contributing money to the eurozone bailout fund, no; Britain contributing money to the eurozone bailout fund, no.
With the Greek government splitting on the referendum promise last night, today’s G20 summit is going to be even messier with the prospect of a snap Greek election now not out of the question. Papandreou says the referendum is about how the bailout, and the conditions that come with it, could be fed to the Greeks.[…]
“Britain will not be putting money into the bail-out fund either directly or through the IMF…. The IMF exists to support countries, it does not exist to support currencies… The IMF contributing money to the eurozone bail-out fund, no; Britain contributing money to the eurozone bail-out fund, no.[…]
Though both the IMF and the Treasury are quick to stress that deficit reduction is the right thing to do, it’s not going to be as pleasant as the Chancellor will have us believe. Ronald Reagan asked to be judged on whether you were richer at the end of his medicine or before, but George will probably want to avoid that particular campaign slogan, given the IMF warn that British households will apparently be £1,500 worse off each year of the slowing recovery.[…]
“It was a tongue in cheek pop after the European Parliament tweet – it was purely that. I also wanted to congratulate Team GB on a brilliant result and thirdly congratulate the Commonwealth countries who also did very well. Fourth, I am also looking forwarded to establishing new trade agreements. That was it – nothing more. Let’s just enjoy the summer!”