Grexit: It’s a question of how, not if, Greece will leave the euro

Over at Foreign Exchange, I’ve got a post up on the euro. Short version: all signs now point to a Greek exit, and Christine Lagarde has given a statement indicated there is no turning back.

It sounds as if she’s essentially saying to the Greeks and others in Europe, you’ve had a nice time and now it’s payback time.

“That’s right.” She nods calmly. “Yeah.”

And what about their children, who can’t conceivably be held responsible? “Well, hey, parents are responsible, right? So parents have to pay their tax.”

That fits entirely with the strict language she used when I interviewed her in August:

She knows this is a tough sell. “You first have a period [after making cuts] where growth takes a hit and goes negative”—and with that come unavoidable human costs in lost jobs and social services. Political feuding over controversial cuts will only make the pain worse. How should ordinary people cope? She pauses. “It takes courage.”

What are the implications of this tough stance:

Hypothetically, should Germany refuse to loosen the terms of its loans to Greece, the IMF could offer a bit of rope on its loans to Greece that would allow a left-wing Greek government to save face without upsetting the eurocart. But. as those of us who have followed her closely expected, Lagarde has unequivocally squashed that possibility in her remarks tonight.

Read the whole post here.

It Takes Courage: Christine Lagarde at the IMF

I’ve written the cover story of the next issue (dated September 12) of Forbes, a profile of Christine Lagarde, the new head of the IMF. This is Forbes’ annual Power Women issue, containing the magazine’s ranking of the world’s 100 most powerful women. Lagarde comes in at #9.

Here’s a snippet of my piece:

Not a moment too soon, given a world in financial turmoil and an IMF shaken to its core by the scandal of her predecessor, Dominique Strauss-Kahn, who resigned over allegations of sexual assault in May. A moderate Socialist, DSK pushed for lenient fiscal policies and stringent financial regulations and opposed austerity programs in beleaguered euro zone economies like Ireland, Portugal and Greece. Lagarde, an unabashed free marketer, takes a much flintier approach to the crisis. It’s time, she says, to return the IMF to its roots, “that fiscal consolidation line, which I think is right.”

She knows this is a tough sell. “You first have a period [after making cuts] where growth takes a hit and goes negative”—and with that come unavoidable human costs in lost jobs and social services. Political feuding over controversial cuts will only make the pain worse. How should ordinary people cope? She pauses. “It takes courage.”

Read the whole story (and watch some video from my interview with Lagarde) here.