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POLITICS

Lagarde pitches for IMF job

 

French Finance Minister Christine Lagarde on Thursday made her case to become the next leader of the International Monetary Fund, vowing to promote reforms to make the power lender more representative of the global economy.

 

Lagarde pitches for IMF job

Lagarde said she had “productive” one-on-one meetings with IMF executive directors Wednesday and early Thursday in Washington, before a three-hour interview with the 24-member board in the afternoon.

The 187-nation Fund needs to “continue its shift towards responsive, even-handed and balanced action in support of global economic and financial stability, the better to serve the whole membership,” she said in a statement to the board.

“I am not here to represent the interest of any given region of the world, but rather the entire membership,” she said.

Lagarde is the front-runner in the race for the IMF top left vacant after managing director Dominique Strauss-Kahn resigned May 18 to fight sexual assault charges in New York. Strauss-Kahn denies the allegations.

Lagarde’s sole rival, Mexico’s central bank governor Agustin Carstens, admitted that Lagarde’s chances of being elected by the board “are quite high.”

Lagarde has the backing of Europe, which holds seven of the 24 seats on the executive board, and the board hopes to select the new managing director by consensus.

Under a tacit agreement between the United States and Europe, the leadership of the IMF has always gone to a European, while the top job at the World Bank has always gone to an American.  

The United States, the largest IMF stakeholder with nearly 17 percent of the vote, has not publicly endorsed either Lagarde or Carstens, considered an emerging-market candidate.

Lagarde met with US Treasury Secretary Timothy Geithner Thursday morning before heading to the board interview.

Geithner “believes that Minister Lagarde’s strong leadership skills and experience makes her an exceptionally talented candidate for IMF managing director,” Treasury spokeswoman Natalie Wyeth said.

“He again reiterated his appreciation for the strong candidates who have come forward, particularly at this critical time for the global economy,” she said.

Lagarde emerged from IMF headquarters after the board audition looking relaxed.

“I believe the Fund should be more responsive, certainly more effective and more legitimate,” she told a gaggle of waiting reporters.

“And that really entails many potential improvements but also continuation of the reforms that have been undertaken by my predecessor,” she said, her choice of word for fellow countryman Strauss-Kahn suggesting she feels confident about her selection as the new boss.

Lagarde said the IMF was a “remarkable” institution with an “exceptional staff.”

“It should become more responsive, more involved, more legitimate with regard to the integration of its 187 members. In any case, that would be my goal,” she added. “It’s now for the membership to decide.”

The IMF board has set a tight deadline for filling the top job: June 30.

The executive board meets Tuesday with the aim of reaching a decision “by consensus,” according to the IMF, but in case of deadlock it will decide by majority vote.

The announcement of the new managing director could come before next Thursday’s deadline, IMF spokesman David Hawley said.

Lagarde’s interview with the board followed on the heels of Carstens’s two-day campaign at IMF headquarters. He also had a three-hour board interview Tuesday and the IMF issued his statement to the board.

Lagarde, 55, would be the first woman to head the Washington-based IMF, which oversees the global financial system and provides emergency lending to medium- and high-income member countries.

A lawyer by training, she would also be the first IMF managing director who  was not an economist.

Her rival Carstens, 53, is an economist who has worked at the IMF, including a stint in the number-three position, deputy managing director, from 2003 to 2006.

Lagarde tackled head-on criticism that she, as a European, would have a conflict of interest in dealing with IMF involvement in the financial rescues of  Greece, Ireland and Portugal.

“I am on record for having supported a selection process regardless of nationality. As a consequence, being French and being European should be neither an advantage nor a handicap,” she said in her statement to the board.

The IMF said no start date has been set for the next managing director.

ENERGY

EXPLAINED: Why are French energy prices capped?

As energy prices soar around Europe, France is the notable exception where most people have seen no significant rise in their gas or electricity bills - so what lies behind this policy? (Hint - it's not just that the French would riot if their bills exploded).

EXPLAINED: Why are French energy prices capped?

On most international comparisons of rising energy prices, France is the outlier – but the government control of energy prices is not in fact a new policy and was in place well before the Russian invasion of Ukraine sent gas and electricity prices soaring.

At present prices for domestic gas are frozen at 2021 levels and electricity prices can only increase four percent per year. According to economy minister Bruno Le Maire, without these measures French bills would have risen by 60 percent for gas and 45 percent for electricity.

Both these measures – collectively known as the bouclier tarifaire (tariff shield) – are in place until at least the end of 2022, and could be extended into 2023.

The extension of the price shield was confirmed by parliament earlier in August – part of a €65 billion package of measures aimed at tackling the cost-of-living crisis – but had been in place for much longer.

Tariff shield

The reason that gas prices are frozen at 2021 levels is that the freeze came into effect on November 1st 2021 – well before Russia’s February 2022 invasion of Ukraine.

The measure was initially put in place to help people deal with the economic after-effects of the pandemic, but was extended in the spring of 2022, when electricity prices were also capped at four percent.

Price regulation

But although prolonged price freezes are unusual, the French government involvement in price-setting is completely normal and during non-freeze periods, a rate is set each month.

If you read French media (or The Local), you’ll notice regular articles on ‘what changes next month’ which include gas and electricity prices, usually expressed as a month-on-month percentage rise or fall. This refers to the maximum rate that utility companies are allowed to increase their charges per month.

The government-set rate refers to the basic price plan from EDF. Some people are on special deals or time-limited tariffs, so if their deal or payment plan ends and they go back onto the basic rate, they can see a rise above the government rate.

Around 85 percent of households in France get their electricity from EDF. 

READ MORE: Reader Question: Why did my French electricity bill increase by more than 4%

State-owned utilities

So, why is the government involved? Well, it’s the majority stakeholder in EDF, the country’s largest electricity supplier, and owns Gaz de France (Engie). 

At present EDF isn’t completely state owned – although there are plans to fully nationalise it – but it owns 84 percent.

The French state owns a lot of service and utility companies including the country’s rail provider SNCF, postal service La Poste and France Télévisions. One notable exception is the country’s autoroutes, which are run by private companies, although the government sets limits on toll charges. 

Nuclear 

France is less exposed to energy shocks than some other European countries because of its nuclear sector.

It is unusual among European nations in the size of its nuclear industry – around 70 percent of electricity comes from its own domestic nuclear power plants, although during the heatwave several plants have had to lower output as rivers have become too hot to effectively cool the reactors. There are also ongoing technical issues that have seen some of the older plants shut down or forced to lower output.

READ ALSO Why is France so obsessed with nuclear?

France is usually a net exporter of electricity, but at peak times it has to import electricity, usually via the high-priced international spot market.

It does, however, import its gas, mostly via pipeline – in 2020 its biggest supplier was Norway, followed by Russia.

The French government has launched a sobriété energetique (energy sobriety) plan to cut its total energy consumption by 10 percent this year, which it hopes will allow it to get through the winter without Russian gas. 

Riots

Even before the recent €65 billion aid package, the French government was taking a pro-active role in helping people deal with rising prices – from the price shield to fuel rebates for drivers, €100 grants for low-income households and financial aid for industries such as agriculture and logistics so they could avoid passing prices on the consumers.

Cynics say this happened for two reasons – because there were elections in April and June and because the French would riot if their utility bills suddenly doubled.

There’s a kernel of truth in both – cost of living became a major issue in the April presidential elections and one that far-right leader Marine Le Pen very much made her own from early in the campaign, leaving Emmanuel Macron slightly on the back foot, although in truth his government had already introduced several measures to ease the burden on ordinary voters.

It’s also true that the French have a robust approach to holding their government to account, and high living costs have previously inspired noisy and sometime violent protests – the ‘yellow vest’ movement of 2018 and 19 began as a protest over living costs.

But it’s also true that the French State is generally quite involved in people’s everyday lives – as evidenced by those monthly gas and electricity price rates – and taking a laissez-faire approach such as that seen in the UK would be unusual for any French government, even outside of election season.

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