Transcript of Aspen Ideas Festival: Conversation with Christine Lagarde
IMF News, June 24, 2016
Source details
- Canonical URL
- Transcript of Aspen Ideas Festival: Conversation with Christine Lagarde
Other formats
Bibliographic details
- Published: June 24, 2016
Brexit: assessment, risks, and recommended approach
- European Union represents "roughly 500 million" people and is "the largest free-market economy in the world."
- United Kingdom: "over 60 million" people; GDP per capita "around 45,000"; unemployment "about five percent"; growth "ranging from 2.2 to 1.9"; public finances "largely reestablished" with debt-to-GDP moving in a "good direction."
- Immediate market reaction on Friday:
- Markets had "vastly underestimated the outcome."
- The pound "went down by 10 percent" (with partial recovery later in the day).
- There was "no panic"; central bankers "put a lot of liquidity on the markets" to avoid liquidity shortages.
- Short-term versus long-term impacts:
- Short-term effects will be driven by "the level of certainty or uncertainty" and "predictability or lack of predictability" in the coming days and weeks.
- Long-term economic impact on the UK and growth in the European Union is "no doubt" if withdrawal is followed through.
- Institutional and political constraints:
- The referendum was "legally of an advisory value."
- Prime Minister Cameron indicated he would not trigger Article 50 immediately; leadership transition expected via Conservative Party process "after the holiday which will be in the course of September. So early October."
- Article 50 provides a "two years’ timeframe within which negotiations must be conducted."
- There is "no precedent" for withdrawal except "30 years ago by Greenland."
- IMF policy recommendation:
- IMF "very strongly encouraged and will continue to encourage the parties involved to actually proceed with this transition in the most efficient, predictable way in order to reduce the level of uncertainty."
- Policymakers should act cohesively, concertedly, and predictably to reduce economic risks and contagion.
Market and policy reaction
- Markets and bookmakers failed to anticipate the referendum outcome, contributing to "massive volatility."
- Central banks provided liquidity; "central bankers did the job that they were prepared to do."
- Public statements from policymakers across groupings sought to "reassure that the situation was under control."
Political economy, public sentiment, and democracy
- Populist and anti-expert sentiment highlighted: why "do the populous voices...carry a lot more and a lot further than the voices of 'experts'?"
- Youth versus older voters:
- "Millennials by a large amount voted to remain."
- "Three and a half million people have signed a petition to hold another referendum."
- Advice to young people: acknowledge regret among some who did not vote; potential constructive outcomes include negotiating arrangements similar to "Norway" (access to markets with payments and free movement implications) which "would be probably the best outcome both in economic terms and in response to the concern of Nicholas and all his friends."
Leadership, European cohesion, and security
- Europe needs "concerted efforts on the part of many" leaders rather than a single "charismatic" leader.
- Angela Merkel cited as an example of a leader who can help find the equilibrium between rigor and fairness in negotiations.
- Security concerns:
- Brexit creates a distracting moment; risk that adversaries or external actors could exploit divided attention.
- Security responses require "concerted efforts at all levels of organizations, societies and not just at the police and intelligence levels."
IMF broad priorities and nontraditional focuses
- Institutional agenda driven in part by Lagarde's priorities:
- Climate change
- Empowerment of women
- Financial inclusion
- Excessive inequality and its impact on growth
- Emphasis on inclusion as essential to "repair or support and strengthen the chemistry of societies."
- Corruption:
- Global corruption estimated at "anywhere between $1.5 and 2 trillion."
- Corruption affects a wide range of countries and "the most exposed people" are generally the victims.
- Combatting corruption is possible but "will take time" and require "cohesion and leadership" and careful "transition" from opaque to transparent systems.
Country-specific advice and examples
- Nigeria:
- Lagarde praised "the exchange rate new policy" by the Central Bank of Nigeria and President Buhari's acceptance of it.
- Recommended: diversify away from heavy oil dependence; continue anti-corruption efforts; support job creation for youth; maintain more flexible exchange rate and growth-friendly fiscal and monetary frameworks.
- Italy, Spain, France:
- Policy advice to reduce referendum odds: implement growth-friendly policies to "lift economy," "create demand," "generate growth," and "create jobs."
- Use the "three pronged approach" Rolled out by IMF: structural reforms, fiscal policy that is "growth friendly," and supportive monetary policy, with the burden not placed solely on central banks.
Notable ideas and audience exchanges
- Proposal to permanently host the Olympic Games in Athens to boost Greece's economy: seen as "a great out of the box idea" that would create demand but raises governance, transparency, and multilateral appeal questions.
- On negotiation tone: Lagarde expressed a preference for "encouraging, supporting" over punitive approaches while recognizing the need to avoid appearing "overly warmhearted" and thereby encouraging contagion.
Transcript of Aspen Ideas Festival: Conversation with Christine Lagarde. June 24, 2016. IMF Communications Department.