Lagarde A Shoo In? Not So Fast...

Tyler Durden's picture

Following an earlier report by Handelsblatt which made it seem that Christine Lallouette Lagarde's (henceforth CLL) ascent to the head of the IMF was a fait accompli, here comes Reuters to spoil the party. As was disclosed deep in the footnote area of the German article, Christine has a bit of a legal cloud of her own to deal with. To wit: "Her prospects could be undermined by a legal row, unlikely to be resolved before June at the earliest, over her decision to settle a dispute between the state and businessman Bernard Tapie, a personal friend of President Nicolas Sarkozy. Lagarde denies any misconduct, and there is no suggestion of personal profit. But legal trouble could delay her appointment or even make her unacceptable to the IMF as it tries to polish its image after Strauss-Kahn's dramatic fall from grace." And once again nothing is ever easy for Europe: the continent which would be very glad to never again see a male figurehead atop the IMF following the latest humiliation (even though technically the IMF has the US as its key source of capital, European countries add up to well over the US stake) will likely not be willing to risk a court defeat which would likely come only after the critical decision will have to be made. Perhaps it is time to buy some puts on CLL white smoke chances after all.

More details on CLL's legal troubles:

On May 10, a public prosecutor recommended a full judicial inquiry into Lagarde's role in awarding a 285 million euro payout to Tapie, a former left-wing minister whose support for Sarkozy's 2007 presidential campaign helped to discredit his Socialist rival.

Tapie had sued the government, alleging that the former state-owned bank Credit Lyonnais had defrauded him during the sale of his stake in the sports company Adidas in 1993.

Opposition deputies accused Lagarde of abuse of authority after she dropped a legal battle with Tapie in a bid to end the long-running case and submitted it to an arbitration panel, overruling officials in her ministry.

The prosecutor alleges that Lagarde ignored recommendations to check if the arbitration process was legal, and refused recommendations to appeal against the hefty compensation award.

Three judges now have to decide whether to proceed with the case against her or drop it.

"There is no deadline on the statutes but this should take around a month," said a prosecutor. "It's almost impossible for them to take a quick decision, given how technical the case is."

Timing could be crucial. If the IMF seeks to fill the post quickly to turn the page on the sex scandal and press ahead with its European rescue packages, that could rule Lagarde out.

"It could take a while until she's clear and that could be a problem as far as the IMF is concerned," said Jacques Reland of the Global Policy Institute.

U.S. Secretary of State Timothy Geithner appeared to give Lagarde breathing space on Wednesday by suggesting the IMF should name an internal head on an interim basis.

But Merkel said on Thursday that, while she wanted a European in the job, it was important to find a quick solution.

A final deadline could be September 1, when acting managing director John Lipsky's term ends. This could leave the IMF rudderless as the naming of a new deputy is the prerogative of the managing director, not the Board.

Among CLL's skills are "stamina, negotiating skills and English" - who knows. Perhaps that is enough.

Though Lagarde is not a trained economist, her strengths include stamina, negotiating skills and flawless English.

Lagarde has refused to comment on reports of her candidacy, though she is understood to welcome the prospect of a return to the United States, where she worked as the first female head of the Chicago law firm Baker & Mckenzie before being recruited in 2005 by France's then-prime minister, Dominique de Villepin.

One senior European source said Lagarde already had backing from Washington and several large developing countries.

The court case is one of very few blemishes in Lagarde's four years as minister -- the second-longest tenure of any French finance minister of modern times.

She has made a handful of gaffes -- angering the French by telling them to take to bicycles when fuel prices rose -- and recently had an investment called briefly into question.

Bottom line: more theater over absolutely nothing. When push comes to shove, and it will, and there is a slam of $6.5 trillion dollars repatriating following the terminal risk OFF episode, the IMF will be curled up in a fetal position in the corner unable to do jack, while the Fed will once again have to rescue the world.

But for some reason in our day and age of 15 second attention spans, everyone is fascinated with smoke and mirrors...