In Conversation with Christine Lagarde

22 Pages·2016·0.15 MB·English

THE ASPEN INSTITUTE

ASPEN IDEAS FESTIVAL WELCOME AND CONVERSATIONS 2016

IN CONVERSATION WITH CHRISTINE LAGARDE

Aspen, Colorado

Sunday, June 26, 2016

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LIST OF PARTICIPANTS

CHRISTINE LAGARDE
Managing Director, International Monetary Fund

JANE HARMAN
Director, President, and CEO, Woodrow Wilson
International Center for Scholars
Trustee, The Aspen Institute

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IN CONVERSATION WITH CHRISTINE LAGARDE

MS. BOONE: Ladies and gentlemen.

(Applause)

MS. BOONE: Welcome, everybody, to the 2016
Aspen Ideas Festival. This is our 12th Ideas Festival and
I have to say we're so excited, it's ridiculous.

(Laughter)

MS. BOONE: I could use some language that some
people used this morning in the final closing about how
ridiculous it is, but I won't use that. I'm going to be
back in a bit, but we've been planning this event for a
year and we want to get going. So it is my great pleasure
to introduce to you a friend, a trustee of the Aspen
Institute, the president and CEO of the Woodrow Wilson
Center for Scholars, Jane Harman, and our very, very
honored guest, Christine Lagarde, managing director of the
International Monetary Fund.

Would you join us on the stage?

(Applause)

MS. HARMAN: Well, good afternoon, everyone.
Can we please give a shout out for Kitty Boone?

(Applause)

MS. HARMAN: No way -- with all affection for
Walter and the team, no way this could happen without her
magic. So I'm delighted to be back and delighted to be
part of the first act. The reason this is happened: you
may know something happened last week.

(Laughter)

MS. HARMAN: A big vote. It wasn't in the
United States. But Christine was actually coming last
year and at the last minute there was a family event and
she had to cancel. So we decided she would come this
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year, a year's lead time. Nothing would interfere with
Christine and Xavier coming to Aspen, now way. Middle of
last week I get a text: "Sheri (phonetic), there's this
vote, and if it passes, I may have to delay or cancel my
trip to Aspen. But it probably won't pass."

(Laughter)

MS. HARMAN: And remember the day of most people
thought it had tipped and it wouldn't pass. So at 4:00
a.m. on Friday, junkie that I am, I turn on my television.
Oh, my god, 5:00 a.m. text from Christine: "Sheri, I have
to" -- "emergency meetings. I have to delay and may have
to cancel my visit to Aspen."

So I thought, "She did predict this" -- "how
sad." So canceled a bunch of things, but headed to Aspen
anyway, landed in Aspen to find that she managed to come.

(Applause)

MS. HARMAN: And has to leave early. So Walter
had this brilliant idea that we would hold this event
early. And the 800 of you who are in the first session
get the whole advantage of this and so do I.

So Christine Lagarde is a dearest friend. I'm
totally objective when I say she's one of the most admired
women on the planet. Do we agree?

(Applause)

MS. HARMAN: She was just elected unanimously --
get that -- to her second five-year term as the director
of the IMF, the International Monetary Fund; the first
woman to hold that position. She also was --

(Applause)

MS. HARMAN: -- the first woman to be finance
minister of a G7 country. She also was the first woman to
chair a major international law firm. Not bad.

(Applause)
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MS. HARMAN: So the markets are opening in Asia
-- I believe I'm correct -- and there are "wreckperts"
everywhere -- good new word; I read it, I didn't make it
up -- who are saying, "Catastrophe" -- "the U.K. will
fall, the EU will fall. The U.K. has opportunities. The
EU has opportunities. These countries will leave," so on
and so forth. The markets obviously were down on Friday.

My first question to you my friend is: is Brexit
a catastrophe or an opportunity or both?

MS. LAGARDE: Thank you very much, Jane, for
this easy one.

(Laughter)

MS. LAGARDE: And thank you very much. On
behalf of my husband and myself, I like to really thank
the Aspen community. We've been here for less than 48
hours and we've only met lovely, nice, warmhearted,
welcoming, hospitable people, not to mention of course
Jane and Bob, my friends. But really thank you so much.
It feels so good to be here.

(Applause)

MS. LAGARDE: Jane, what I thought I would do is
just start with a few numbers and a few -- put things in
perspective a little bit because there is a lot of either
short memories or a rush to a few conclusions, which I
think is not necessarily the wisest thing to do at the
moment.

So looking at numbers a little bit. I think we
have to keep in mind that the European Union which started
being constructed over 50 years ago represents roughly 500
million people and is the largest free market economic
zone in the world. That's what the U.K. is considering at
the moment.

The U.K. itself is a country with over 60
million people; GDP per capita at around $45,000; a pretty
good track record of economic policy in the last few years
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with unemployment down at about 5 percent; growth ranging
from 2.2 percent to 1.9 percent and up; and, you know,
public finances that have been largely established and a
good direction in terms of debt-to-GDP.

So that's the economic situation of that country
at the moment. And I'm saying that with particular
purpose, which will be, as you will understand, the
questions that I have at the end of my quick look around.

Second set of facts, which I think are
important, is that on Friday as we all sort of woke up to
this news, which was heartbreaking for those of us who are
truly Europeans and certainly it was very much my
sentiment as a European. But when we woke up we realized
that first of all the markets had vastly underestimated
the outcome.

And contrary to what I hear all the time from my
teams, which is essentially markets usually get it pretty
right and anticipate reasonably well, on this particular
occasion whether it was a bookmaker or the markets that
was not anticipated very much -- which will explain
something that I will say in a minute.

That's point number one. Point number two; it
might just be the case that the experts much criticized,
including by Justice Minister Gove. They just might be
right and it's not necessarily going to be the best news
in the world.

Third; on that Friday in the course of the day
there was no panic, right? And despite the fact that
markets had not anticipated that vote, and therefore, had
priced in asset values and other currency values the fact
that the U.K. would probably remain, which led to a nice
increase on the markets in the days preceding the
referendum. Well, despite that, there was no panic.
There was a violent, brutal immediate massive move.

You know, the pound went down by 10 percent,
caught up a little bit later on in the day. The
valuations, you know, went down in many corners and some
people lost a lot of money, other people made a lot of
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money, as is often the case when there is massive
volatility. But there was no panic. And the central
bankers did the job that they were prepared to do just in
case, which was to put a lot of liquidity on the markets
so that there would not be shortage of liquidity and no
sort of fading away of those liquidities as we saw it on
previous occasions, particularly in 2008.

So that's the first take. You know, central
bankers did their job. All groupings, organizations,
eminent policymakers came out publicly along the same
lines of trying to reassure that the situation was under
control and it was very much under control. We didn't see
those sort of panic move.

Now, having said that, clearly what we are
facing in terms of -- and I'm coming to your question.
Risk opportunities or threat opportunities I think needs
to be distinguished in terms of short-term, long-term.
And we have done a lot of forecast, analysis as have many
other institutions. And our conclusions, which I have
shared with British public opinions -- not too much
success -- was that the outcome would not be a very happy
story for the British people both in terms of trade
declining, in terms of productivity probably declining, in
terms of income, in terms of inflation and so on and so
forth.

But very much of that outcome, which is not
terribly precisely predictable, is going to depend on the
level of certainty or uncertainty, predictably or lack of
predictability: people going in a risk-off mode or
considering that the situation is going to settle back or
not. So I think that at this point in time policymakers
both in the U.K. and in Europe are holding that level of
uncertainty in their hands and how they come out in the
next few days is going to really drive the direction in
which risk will go.

Now, we are hearing at the moment -- and I'm not
inventing it -- different statements going a little bit in
many directions. There's uncertainty in the political
party situation in the U.K. both in the Labour and in the
Conservative Party. There is a timetable that has been
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announced under which this referendum, which was legally
off an advisory value, is leading to the resignation of
the prime minister, which will only be effective at the
time when he is actually replaced by his successor, who
will be appointed by the Conservative meeting which will
take place probably after the holiday, which will be in
the course of September. So early October we will know
who is the next leader of the Conservative Party.

And in the meantime, Prime Minister Cameron has
indicated that he was not going to trigger this famous
Article 50 of the European treaty, which provides for the
terms under which a withdrawal can be actually notified
and organized. But there has been no withdrawal from the
European Union except some 30 years ago by Greenland,
which left from Denmark literally. There is no precedent.
There is no real history of how these things happen.

So certainly from our perspective as the IMF, we
have 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, which will
itself determine the level of risk that we are facing.

Having said that, in the long-term if the
decision was maintained and if the leave is effectively
followed through by a withdrawal from the United Kingdom,
there's no doubt that it will have an economic impact on
that economy and it will have also an economic impact on
growth in the European Union.

So policymakers are going to be in high demand
to come in the most cohesive, concerted and hopefully
positive way in response to the situation.

MS. HARMAN: Yeah.

MS. LAGARDE: Final point -- and I think this is
something that does not apply on to the U.K. and the
European Union and the Euro area -- is why -- and I think
those are the questions that will come to the fore not
just in the U.K. But why is it that the populist voices
sometimes based on so-called truth that they now have to
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retract? Why is it that those voices carried a lot more
and a lot further than the voices of "experts" who were
largely unanimous about the outcome and consequences of
the decision?

That's a big question to ask. Is it an issue of
the economic outcome? Is it an issue of the democratic
process? Is it an issue of the communication channels?
But all those questions I think are on the table and
warrant everybody's attention.

MS. HARMAN: Well, there's another dimension to
that. For those of you -- and you're all junkies, so you
all know this -- who have studied how the vote went:
millennials by a large amount voted to remain. And here's
just a summary of a post that many of you probably have
seen, which is gone viral, by somebody named Nicholas. He
said the Brexit vote is three tragedies. First, the
working classes who voted to leave will be hurt the most.

Second, the younger generation will have never
known the full extent of lost opportunities. And he says
literally: "freedom of movement was taken away by our
parents, uncles and grandparents in a blow to a generation
already drowning in the debts of our predecessors.

And this third point, which is searing, is that
we now live in a post-factual democracy. That's exactly
what you said, Christine. And he asks: "when was the last
time a prevailing culture of anti-intellectualism led to
anything other than bigotry?"

So after you have absorbed that --

(Applause)

MS. HARMAN: There's a lot of buyer's remorse
out there. Three-and-a-half million people have signed a
petition to hold another referendum. Given the fact that
the formal exit isn't triggered, do you think there's any
chance that can't you take a joke will be --

(Laughter)

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MS. HARMAN: -- operative?

MS. LAGARDE: You know, it's really hard to
speculate. But, you know, the sleepy lawyer wakes up
inside myself and --

MS. HARMAN: I'm still asleep.

MS. LAGARDE: But, you know, I don't think that
it's there. Although you could argue that with an
advisory capacity and the sort of general uncertainty
about the timeline, about the triggering point, about the
two years timeframe within which negotiations must be
conducted, there is room for revision. But I just don't
see it personally and, you know, I certainly don't want to
be quoted on that because it's very much up in the air.

And it's -- by the way, it's for the U.K. to
actually decide for itself at the end of the day. And
they are -- that country is the only country that can
actually trigger the mechanism.

MS. HARMAN: Right.

MS. LAGARDE: No matter how much the EU leaders
insist on it being conducted very diligently, it is the
U.K. that can trigger the Article 50.

MS. HARMAN: Let me ask you about leadership in
the context of Brexit. You've mentioned the need for a
steady hand. But The WorldPost, which is part of The
Huffington Post, something that I think is very good piece
of journalism, wrote yesterday that there are only two
compelling leaders in the world, the Pope and Yo-Yo Ma.

(Laughter)

MS. HARMAN: And I'm actually very partial to
Yo-Yo Ma since he was once the Harman-Eisner artist in
residence at the Aspen Institute and a dear friend. But
who could lead Europe through this? What steady hand is
in Europe? Angela Merkel comes to mind; so do you.

(Laughter)
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