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The Fund is back in town

The tough remedies of the IMF won it few friends and, in recent years, countries have found more obl

A year ago I attended an informal briefing in Washington by a senior British policymaker who lamented the passing of the International Monetary Fund as an institution of any worth. Globalisation meant that bankrupt nations no longer needed IMF medicine to cure their ills. Rather, they could obtain all the finance they required from the global banking system without strings attached.

Instead of a nasty IMF able to topple governments - as almost happened in Britain during the sterling crisis of 1976 - the world needed a different kind of international authority: one that was slimmer, cheaper to run, fleeter of foot and able to provide advice on the great global issues of the day, such as the mismatch of exchange rates between the US dollar and the Chinese yuan.

The IMF could no longer rely on the interest rate charges it received on loans to support its operations, as the last of a previous generation of big borrowers, Argentina and Brazil, paid back their debts by the start of 2006, two years ahead of schedule. To stay afloat, the IMF would have to sell off some of its huge gold reserves, paid in by western governments as the Second World War drew to a close. That same year, the governor of the Bank of England, Mervyn King, warned that the Fund was in danger of "slipping into obscurity".

How rapidly things changed. By the spring of 2008 the IMF, under the leadership of the then recently appointed managing director, Dominique Strauss-Kahn, a socialist and former French finance minister, was among the first global organisations to predict doom for the world's banking system. When it suggested the eventual losses from the US sub-prime debacle could reach $1trn, this was airily dismissed by bankers and policymakers as scaremongering. It is now clear that the eventual cost could be at least twice that.

Now, a crisis that began in the more recherché areas of the banking system is spreading far and wide. Countries from Iceland to Pakistan are knocking on the doors of the IMF's fortress-like headquarters in Washington, a few hundred yards from the White House, asking for advice and money. The Fund is back in business.

It is unfortunate, therefore, that just as the IMF is starting to be revitalised by the task of saving global capitalism from itself, it has been bedevilled by allegations concerning the priapic behaviour of its leader. Strauss-Kahn now finds himself under investigation by one of the world's largest law firms (on behalf of the IMF's board) over allegations of an improper relationship with a former member of staff, Piroska Nagy, an economist who worked in the Fund's Africa department. Nagy, a Hungarian national, has since moved on to work for the European Bank for Reconstruction and Development but, according to the Wall Street Journal, may have received "an excessive pay-off" when she left.

The incident will rekindle memories of the departure of Paul Wolfowitz from the World Bank in June 2007, after similar allegations of an affair with a member of staff. In both cases, the complex politics of the Bretton Woods institutions played a part. Wolfowitz was under fire for his neoconservative views and for using the Bank to support regimes he favoured. Strauss-Kahn is being targeted for his advocacy of tight market regulation and his support of Keynesian policies to refloat the global economy.

Irrespective of what the investigators turn up at the IMF (in the Wolfowitz case, a huge dossier of documents eventually emerged), it would be calamitous if Strauss-Kahn were forced to step aside at present.

The IMF's previous boss, Rodrigo Rato, resigned for mysterious "personal reasons" in October 2007, midway through his term of office. This exposed a huge rift over the traditional, undemocratic way in which the leaders of the IMF and World Bank are chosen. His torically, the Europeans - when they eventually agree among themselves - have chosen the managing director of the IMF, while the Americans have chosen the president of the World Bank.

This convention has so far blocked Asian, Russian and Latin American access to these hugely influential jobs.

The last thing the world needs now, with the banking and financial system on the edge of a precipice and the capital markets all but closed down, is a long-drawn-out fight over financial leadership. As we saw in the US Congress, when the Treasury's $700bn bailout of American banking was first rejected, politics plays badly on Wall Street and financial markets around the world. A fight for the soul of the IMF, in the middle of a crisis, could be dangerous.

The flow of capital from the west to emerging market economies is under severe pressure because of the banking catastrophe. Last year, emerging markets received inflows of $900bn from western financial institutions. This year, the figure will be only $56bn, thus starving countries across the world of the money they need to service their debts, to invest and to buy goods on global markets.

Moreover, nations holding large foreign exchange reserves, such as China and the oil-rich Gulf states, are pulling in their horns because of market uncertainty. It is when the flow of capital dries up that the global “lender of last resort”, the IMF, comes into play.

In the 1980s, the IMF was at the forefront of economic reform in Latin America. The arrival of IMF teams with proposals to end food subsidies would often result in rioting on the streets. In the 1990s, the Fund turned its attention to the former Soviet Union and its satellites, unleashing a period of klepto-capitalism.

This time around, Iceland, which has caused so much grief for British local authorities and consumers, is at the front of the queue and will collect $3.5bn in loans. Iceland is a classic case of a country in need. The banks have been nationalised. The currency, the krona, has fallen 18 per cent since March, and interest rates have been raised to 15 per cent with little noticeable effect.

But what is true of Iceland is typical of many nations around the world that have been able to live beyond their means because of the explosion in free capital flows. No one has worried about running a balance-of-payments deficit, because the assumption has always been that there will be a bank or foreign investment fund willing to meet the difference.

The year 2008 is starting to feel like 1996-97, when the Asian economies were under siege and suffered a precipitous drop in living standards.

Eastern European economies led by Hungary and Ukraine are struggling to remain solvent. South Korea, having had a run on its currency, has made a desperate call to Washington. Tur key, a perennial IMF client, is back in trouble. And Pakistan, up to its neck in debt and political unrest, also needs a bailout.

It could all become much worse, and developing nations are likely to be the victims hardest hit. One of the features of a slump is falling prices for primary goods and commodities. Just since July, commodity prices have fallen 37 per cent, cutting off a huge source of income for growers and people working in the mining industry. With western banks in disarray, there is little possibility that private capital flows will fill the vacuum. The only choice countries will have is to borrow from the IMF, whose money does not come cheap. And its loan fees come with austerity packages attached.

Strauss-Kahn may plead the Keynesian case to save the world from depression, but the IMF economists have been trained on a diet of balanced budgets, an end to subsidy, and privatisation. The result can be politically disruptive and socially divisive. The Fund is back and there is no reason to believe that it will be any more accommodating than in the past. That is not its way.

Alex Brummer is City editor of the Daily Mail

This article first appeared in the 27 October 2008 issue of the New Statesman, The death of Gucci capitalism

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The French millennials marching behind Marine Le Pen

A Front National rally attracts former socialists with manicured beards, and a lesbian couple. 

“In 85 days, Marine will be President of the French Republic!” The 150-strong crowd cheered at the sound of the words. On stage, the speaker, the vice-president of the far-right Front National (FN), Florian Philippot, continued: “We will be told that it’s the apocalypse, by the same banks, media, politicians, who were telling the British that Brexit would be an immediate catastrophe.

"Well, they voted, and it’s not! The British are much better off than we are!” The applause grew louder and louder. 

I was in the medieval city of Metz, in a municipal hall near the banks of the Moselle River, a tributary of the Rhine from which the region takes its name. The German border lies 49km east; Luxembourg City is less than an hour’s drive away. This is the "Country of the Three Borders", equidistant from Strasbourg and Frankfurt, and French, German and French again after various wars. Yet for all that local history is deeply rooted in the wider European history, votes for the Front National rank among the highest nationally, and continue to rise at every poll. 

In rural Moselle, “Marine”, as the Front National leader Marine Le Pen is known, has an envoy. In 2014, the well-spoken, elite-educated Philippot, 35, ran for mayor in Forbach, a former miner’s town near the border. He lost to the Socialist candidate but has visited regularly since. Enough for the locals to call him “Florian".

I grew up in a small town, Saint-Avold, halfway between Metz and Forbach. When my grandfather was working in the then-prosperous coal mines, the Moselle region attracted many foreign workers. Many of my fellow schoolmates bore Italian and Polish surnames. But the last mine closed in 2004, and now, some of the immigrants’ grandchildren are voting for the National Front.

Returning, I can't help but wonder: How did my generation, born with the Maastricht treaty, end up turning to the Eurosceptic, hard right FN?

“We’ve seen what the other political parties do – it’s always the same. We must try something else," said Candice Bertrand, 23, She might not be part of the group asking Philippot for selfies, but she had voted FN at every election, and her family agreed. “My mum was a Communist, then voted for [Nicolas] Sarkozy, and now she votes FN. She’s come a long way.”  The way, it seemed, was political distrust.

Minutes earlier, Philippot had pleaded with the audience to talk to their relatives and neighbours. Bertrand had brought her girlfriend, Lola, whom she was trying to convince to vote FN.  Lola wouldn’t give her surname – her strongly left-wing family would “certainly not” like to know she was there. She herself had never voted.

This infuriated Bertrand. “Women have fought for the right to vote!” she declared. Daily chats with Bertrand and her family had warmed up Lola to voting Le Pen in the first round, although not yet in the second. “I’m scared of a major change,” she confided, looking lost. “It’s a bit too extreme.” Both were too young to remember 2002, when a presidential victory for the then-Front National leader Jean-Marie Le Pen, was only a few percentage points away.

Since then, under the leadership of his daughter, Marine, the FN has broken every record. But in this region, the FN’s success isn’t new. In 2002, when liberal France was shocked to see Le Pen reach the second round of the presidential election, the FN was already sailing in Moselle. Le Pen grabbed 23.7 per cent of the Moselle vote in the first round and 21.9 per cent in the second, compared to 16.9 per cent and 17.8 per cent nationally. 

The far-right vote in Moselle remained higher than the national average before skyrocketing in 2012. By then, the younger, softer-looking Marine had taken over the party. In that year, the FN won an astonishing 24.7 per cent of the Moselle vote, and 17.8 per cent nationwide.

For some people of my generation, the FN has already provided opportunities. With his manicured beard and chic suit, Emilien Noé still looks like the Young Socialist he was between 16 and 18 years old. But looks can be deceiving. “I have been disgusted by the internal politics at the Socialist Party, the lack of respect for the low-ranked campaigners," he told me. So instead, he stood as the FN’s youngest national candidate to become mayor in his village, Gosselming, in 2014. “I entered directly into action," he said. (He lost). Now, at just 21, Noé is the FN’s youth coordinator for Eastern France.

Metz, Creative Commons licence credit Morgaine

Next to him stood Kevin Pfeiffer, 27. He told me he used to believe in the Socialist ideal, too - in 2007, as a 17-year-old, he backed Ségolène Royal against Sarkozy. But he is now a FN local councillor and acts as the party's general co-ordinator in the region. Both Noé and Pfeiffer radiated a quiet self-confidence, the sort that such swift rises induces. They shared a deep respect for the young-achiever-in-chief: Philippot. “We’re young and we know we can have perspectives in this party without being a graduate of l’ENA,” said another activist, Olivier Musci, 24. (The elite school Ecole Nationale d’Administration, or ENA, is considered something of a mandatory finishing school for politicians. It counts Francois Hollande and Jacques Chirac among its alumni. Ironically, Philippot is one, too.)

“Florian” likes to say that the FN scores the highest among the young. “Today’s youth have not grown up in a left-right divide”, he told me when I asked why. “The big topics, for them, were Maastricht, 9/11, the Chinese competition, and now Brexit. They have grown up in a political world structured around two poles: globalism versus patriotism.” Notably, half his speech was dedicated to ridiculing the FN's most probably rival, the maverick centrist Emmanuel Macron. “It is a time of the nations. Macron is the opposite of that," Philippot declared. 

At the rally, the blue, red and white flame, the FN’s historic logo, was nowhere to be seen. Even the words “Front National” had deserted the posters, which were instead plastered with “in the name of the people” slogans beneath Marine’s name and large smile. But everyone wears a blue rose at the buttonhole. “It’s the synthesis between the left’s rose and the right’s blue colour”, Pfeiffer said. “The symbol of the impossible becoming possible.” So, neither left nor right? I ask, echoing Macron’s campaign appeal. “Or both left and right”, Pfeiffer answered with a grin.

This nationwide rebranding follows years of efforts to polish the party’s jackass image, forged by decades of xenophobic, racist and anti-Semitic declarations by Le Pen Sr. His daughter evicted him from the party in 2015.

Still, Le Pen’s main pledges revolve around the same issue her father obsessed over - immigration. The resources spent on "dealing with migrants" will, Le Pen promises, be redirected to address the concerns of "the French people". Unemployment, which has been hovering at 10 per cent for years, is very much one of them. Moselle's damaged job market is a booster for the FN - between 10 and 12 per cent of young people are unemployed.

Yet the two phenomena cannot always rationally be linked. The female FN supporters I met candidly admitted they drove from France to Luxembourg every day for work and, like many locals, often went shopping in Germany. Yet they hoped to see the candidate of “Frexit” enter the Elysee palace in May. “We've never had problems to work in Luxembourg. Why would that change?” asked Bertrand. (Le Pen's “144 campaign pledges” promise frontier workers “special measures” to cross the border once out of the Schengen area, which sounds very much like the concept of the Schengen area itself.)

Grégoire Laloux, 21, studied history at the University of Metz. He didn't believe in the European Union. “Countries have their own interests. There are people, but no European people,” he said. “Marine is different because she defends patriotism, sovereignty, French greatness and French history.” He compared Le Pen to Richelieu, the cardinal who made Louis XIV's absolute monarchy possible:  “She, too, wants to build a modern state.”

French populists are quick to link the country's current problems to immigration, and these FN supporters were no exception. “With 7m poor and unemployed, we can't accept all the world's misery,” Olivier Musci, 24, a grandchild of Polish and Italian immigrants, told me. “Those we welcome must serve the country and be proud to be here.”

Lola echoed this call for more assimilation. “At our shopping centre, everyone speaks Arabic now," she said. "People have spat on us, thrown pebbles at us because we're lesbians. But I'm in my country and I have the right to do what I want.” When I asked if the people who attacked them were migrants, she was not so sure. “Let's say, they weren't white.”

Trump promised to “Make America Great Again”. To where would Le Pen's France return? Would it be sovereign again? White again? French again? Ruled by absolutism again? She has blurred enough lines to seduce voters her father never could – the young, the gay, the left-wingers. At the end of his speech, under the rebranded banners, Philippot invited the audience to sing La Marseillaise with him. And in one voice they did: “To arms citizens! Form your battalions! March, march, let impure blood, water our furrows...” The song is the same as the one I knew growing up. But it seemed to me, this time, a more sinister tune.