Lagarde sets about the Eurozone

When Christine Lagarde took over the IMF top job, it was widely assumed that she would simply continue her predecessor’s policy of almost unconditional support for Eurozone bailouts. But Ken Rogoff, the IMF’s former chief economist, has detected a hardening in the IMF’s approach. He thinks that Lagarde’s call for, as he puts it, “forced recapitalization of Europe’s bankrupt banking system” signals a new, tougher approach towards the euro-zone.

As Rogoff says, the IMF’s previous approach to the euro-zone simply wasn’t credible. The idea that Spain was really at no more risk of a default than Germany was risible.

But, as Rogoff argues, there won’t be a full restoration of the fund’s credibility on this issue until it starts “pressing forcefully for a comprehensive and credible solution to the Eurozone debt crisis, a solution that will involve either partial breakup of the Eurozone or fundamental constitutional reform.”