Christine Lagarde named IMF chief

 

France's Christine Lagarde, 55, has been named the first woman to head the International Monetary Fund (IMF).

The announcement of her appointment came soon after she received the backing of the US and Russia.

Ms Lagarde, the French minister of finance since June 2007, was up against Mexico's Agustin Carstens. An IMF statement said that both candidates "were well qualified".

The post became vacant following the resignation of Dominique Strauss-Kahn.

"The results are in: I am honoured and delighted that the board has entrusted me with the position of MD of the IMF!" Ms Lagarde said via Twitter minutes after the announcement.

In a statement, the IMF said: "The executive board of the International Monetary Fund today selected Christine Lagarde to serve as IMF managing director and madame chairman of the executive board for a five-year term starting on July 5, 2011."

Ms Lagarde, it said, was "the first woman named to the top IMF post since the institution's inception in 1944".

The 24-member board called both Ms Lagarde and Mr Carstens, Mexico's central bank governor, "well-qualified candidates" and that it decided on Ms Lagarde "by consensus".

Mr Strauss-Kahn resigned abruptly on 18 May after being arrested in New York for an alleged sexual assault.

'Indispensable institution'

Ms Lagarde toured the world drumming up support for her candidacy.

There were initially reports that many IMF members wanted the next managing director to come from an emerging market economy.

The IMF's David Hawley announces Christine Lagarde's appointment

But in the end Ms Lagarde won over some powerful allies among developing nations, including Brazil and China.

The US, which along with Russia came out in favour of Ms Lagarde just hours before the appointment was announced, said her experience would be invaluable.

US Treasury Secretary Timothy Geithner said in a statement: "Minister Lagarde's exceptional talent and broad experience will provide invaluable leadership for this indispensable institution at a critical time for the global economy."

Her immediate task will be to deal with the efforts of the IMF and European Union to resolve the Greek debt crisis and prevent contagion to other eurozone economies.

Before becoming France's finance minister, she was minister for foreign trade for two years.

Prior to moving into politics, Ms Lagarde was an anti-trust and employment lawyer in the US.

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Greece: Top Italian banker says Europe's banks can help

 

The boss of Italy's biggest bank says Europe's banks can work together with European institutions to help Greece.

"I think there is room for strong collaboration," said Corrado Passera, chief executive of Intesa Sanpaolo.

On Monday, French President Nicolas Sarkozy said French banks had agreed to extend their loans to Greece.

Eurozone officials are trying to find a way for banks to support Greece's bail-out without the country being judged to have defaulted on its debt.

Credit ratings agencies have warned that if banks agree to extend their loans to Greece, even voluntarily, they may judge it to be a debt default, which would cause even more problems for Greece.

President Sarkozy's idea was that when banks are repaid money they are owed by Greece, they should keep 30% of it, re-lend 50% of it to Greece for 30 years and put the remaining 20% into a special fund of high-quality bonds, which would insure them against a future Greek debt default.

French banks have the biggest exposure to Greek debt, while Italy has relatively low exposure.

The deal may be unpopular with Germany, because the new bonds would be insured by eurozone bail-out funds.

The French plan has yet to be agreed either with eurozone leaders or the Greek government.

BBC business editor Robert Peston says the real problem with the proposals is that there has been no attempt to reduce the amount of money that Greece owns, unlike in the Brady bonds for indebted countries such as Mexico, Argentina and Brazil, on which President Sarkozy's plans were based.

Nonetheless, German banks are reported to be very interested in the French model being discussed.

They were discussed by a group of international bankers, who met eurozone officials to discuss the crisis on Monday.

Also, the head of the eurozone's rescue fund, Klaus Regling, is talking to the ratings agencies to explore ways to avoid a second bail-out being considered a default.

European policymakers, notably the European Central Bank, are concerned that the bail-out could force European banks to recognise billions of euros in losses on Greek debts they currently hold, and could also trigger payouts on credit derivative contracts.

Credit derivative contracts are, in this case, bets that Greece will default on its debt. They are used partly as insurance by banks that have bought Greek bonds.

The Greek parliament is discussing a new range of austerity measures, which include introducing income tax on earnings of 8,000 euros (£7,142, $11,600), and is due to vote on the package later in the week.

The ruling party has 155 seats in a 300-seat parliament. Polls suggest the proposals are opposed by three quarters of Greece's 11 million population.

The austerity measures must be agreed before Greece can get its hands on the latest slice of the original 110bn euro support package.

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Italy bank shares dive on credit rating alert

Unicredit was one of the banks whose shares fell sharply in the wake of the Moody's warning
Shares in leading Italian banks fell sharply after the credit ratings agency Moody's said it may downgrade their status.
Moody's report, published late on Thursday, put 16 Italian banks and two government institutions on review for a possible mark-down.
Shares in the country's biggest bank, Unicredit, lost 5.5%.
Intesa Sanpaolo, Italy's second-largest bank, and Monte Paschi also dropped. Trading was suspended in some banks.
Other factors weighing on bank shares included fears that Italian banks could be forced to raise more capital as a result of imminent stress tests.
Credit ratings help investors to determine the strength of an institution or company.
They affect the rate of interest a borrowing organisation must pay. The weaker the credit rating, the higher the cost of borrowing.
Moody's put Italy's public debt on review for possible downgrade amid concerns about low growth and high public debt, which at 120% of gross domestic product (GDP) is one of the highest in Europe.
Greece's debt is 150% of GDP.

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US consumer spending fails to rise in May

Falling car sales were partly blamed for the unchanged consumer spending

US consumer spending was unchanged in May, the first time there has been no growth since September 2009.

Adjusted for inflation, spending contracted by 0.1% compared with the month before, according to the Commerce Department.

Consumer spending accounts for about 70% of US economic activity.

Incomes grew by 0.3% in the month, which was 0.1% above the rate of inflation, reversing a 0.1% inflation-adjusted decline in April.

"While there are no major surprises, there is little good news in this report," said David Sloan at IFR Economics.

"The data does show that core inflationary pressures have gained some momentum."

Falling car sales were partly blamed for unchanged consumer spending, which may be partly connected to production shortfalls following the disruption to car parts producers caused by Japan's earthquake and tsunami.

Also, petrol prices peaked at more than $4 a gallon in May, but have since fallen back, which economists say may increase consumer spending in the following months.

"It was a little bit of a blow to consumers from the higher energy prices and the supply chain issues," said Stephen Stanley at Pierpont Securities in Stamford, Connecticut.

"We'll see a nice rebound in third-quarter GDP on the back of full production in the auto industry."

April's figure was also downgraded to show a 0.3% growth in spending, which equates to a 0.1% decline after inflation is taken into account

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Greece: French banks ready to roll over loans, Sarkozy

Nicolas Sarkozy is trying to forge a plan for French banks to give Greece longer to repay

French President Nicolas Sarkozy says his country's banks would help Greece by giving it 30 years to repay.

France's Figaro newspaper said banks are ready to relend - or roll over - 70% of loans they hold.

The plan is being worked out by the French government and bankers.

Greece, which has not yet exhausted all its first 110bn-euro (£98bn, $158bn) bail-out, is already standing by for further rescue loans expected to be up to 120bn euros.

Losses

However, the German government and others have been pressing for banks and other private-sector lenders to Greece to be involved this time round.

German banks are reported to be very interested in the French model being discussed.

A group of international bankers are currently meeting eurozone officials in Rome to discuss the crisis.

The matter is fraught because credit rating agencies, who determine the credit-worthiness of borrowers, have already said they will view any roll-over of loans by banks as a technical default, something that is tantamount to bankruptcy.

The head of the eurozone's rescue fund, Klaus Regling, is talking to the ratings agencies to explore ways to avoid a default rating.

European policymakers - notably the European Central Bank - are also concerned that the move could force Europan banks to recognise billions of euros in losses on Greek debts they currently hold, and could also trigger payouts on credit derivative contracts.

'Restart the system'

Meanwhile, in earlier comments, Axel Weber, the former president of Germany's central bank, said the piecemeal approach to Greece's debt problems would not work.

Mr Weber said EU governments should accept that at some point they would need to "restart the system".

The ex-Bundesbank chief said the current options for Greece were either a default with debt writedowns, or for Europe to guarantee all Greece's debts.

He said that repeatedly offering aid would only work for a limited time.

Mr Weber - who was once seen as a likely candidate to run the European Central Bank - said: "There are, unfortunately, only very limited options: Either a default or partial haircuts or a guarantee for the outstanding amount of Greek debt."

He added that "the current piecemeal approach of repeated aid programmes inevitably leads to the latter solution. At some point you've got to cut your losses and restart the system."

Opposition

This week is another crucial one for the indebted country.

The Greek parliament will discuss a new range of austerity measures, which include introducing income tax on earnings of 8,000 euros (£7,142, $11,600).

The ruling party has 155 seats in a 300-seat parliament and polls suggest the proposals are opposed by three quarters of Greece's 11 million population.

On Sunday, Greece's deputy prime minister said some of the key cuts and fundraising measures may not be passed.

They must be agreed before the country can get its hands on the latest slice of the 110bn euro support package.

The country cannot stay financially afloat without that.

Protestors were again out on the streets on Monday and a two-day national strike is planned for Tuesday.

Previous demonstrations have culminated in riots.

Contamination

Meanwhile, two major investors have warned of the gravity of the situation facing Europe.

The joint head of the world's biggest bond fund manager, Pimco, has said Greece's sovereign debt restructuring is inevitable.

And leading investor George Soros, who reportedly made £1bn when the pound crashed out of the euro's forerunner, the ERM, said the world was on the brink of another disaster.

"Let's face it: we are on the verge of an economic collapse which starts, let's say, in Greece but could easily spread," he said.

Mr Soros said it was almost inevitable that one or more eurozone country would exit the single currency.

Britain's "big four" banks - Lloyds , Barclays, Royal Bank of Scotland and HSBC - have a relatively small exposure to Greece.

They have a larger exposure to other struggling eurozone economies, particularly Ireland and Spain.

France's banks hold around 15bn euros in Greek government debt.

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