Set against a backdrop of rising support for populist parties, the flurry of upcoming elections in Europe are causes of concerns for International Monetary Fund (IMF) chief Christine Lagarde.
There is growing uncertainty about the future state of the European Union (EU) which has been cast by the impending elections in major countries across Europe including Germany, France and the Netherlands later this year.
The international community is bracing itself for any result from those three major elections after the shock results of Brexit and Donald Trump becoming U.S. President.
“I am worried, as we all are, about the outcome of some of these elections,” Lagarde told an audience at the World Government Summit in Dubai very recently.
However, the election of any populist candidates might not necessarily be completely negative, said the IMF head. Putting forward examples, she pointed out to the election of Matteo Renzi as Italian Prime Minister in 2014, and of Alexis Tsipras in Greece in 2015 to illustrate her point.
“Remember when Matteo Renzi was elected, everyone thought ‘oh my god, what is going to happen with this maverick?'” said Lagarde. There was “not much mavericking” that had taken place. when Renzi’s administration begun, she added.
It has been “difficult” and “laborious” dealing with Greece but “changes are taking place” Lagarde said with regards to Tsipras.
A third bailout program worth 86 billion euros ($92 billion) is now being worked out for Greece. But in the issue of implementation of austerity measures in the country, there is an impasse between Greece, the EU and the IMF.
A rocky relationship over the past few years has been existent between the IMF and Greece. The country is under pressure from the IMF to overcome the impasse George Katrougalos, the Greek alternative foreign minister for EU affairs, said on Friday.
Whether fears over the kind of policies he promised to enact would actually happen, it’s hard to tell so far from his short time in power, said Lagarde while also addressing the issues related to the election of President Trump.
“I have not seen enough of the reality to actually compare the assumptions, the fears … to the reality of it,” Lagarde said.
Meanwhile, while insisting that supervision of big banks should not be loosened and governments must prevent another meltdown, Lagarde also urged financial regulators not to undo the framework put in place after the 2008 financial crisis.
The Dodd-Frank Act, a regulatory reaction to the worldwide financial pandemic triggered by the housing market downturn, is being attempted to be rolled back by President Donald Trump and the IMF was “mindful” of the attempts, Lagarde said at the summit.
The U.S. Treasury secretary was ordered to submit recommendations within 120 days for changes to the financial system regulations enacted under the 2010 law in an executive order that was signed by Trump earlier this month. The policy is stopping businesses borrowing money and is holding back the economy, the president argued.
However, the banks were urged not to “do whatever they please” by Lagarde. In case of another shock to the financial system, she called for authorities to have the right “buffers” in place.
“I’m going to be very mindful of where international financial regulation goes. It’s very important,” Lagarde said in Dubai. Regulators “have a responsibility.”
(Adapted from CNBC)