Series: Banks versus the People: the Underside of a Rigged Game! (Part 6)

Even the IMF agrees…

15 March 2013 by Eric Toussaint

International Monetary Fund
Along with the World Bank, the IMF was founded on the day the Bretton Woods Agreements were signed. Its first mission was to support the new system of standard exchange rates.

When the Bretton Wood fixed rates system came to an end in 1971, the main function of the IMF became that of being both policeman and fireman for global capital: it acts as policeman when it enforces its Structural Adjustment Policies and as fireman when it steps in to help out governments in risk of defaulting on debt repayments.

As for the World Bank, a weighted voting system operates: depending on the amount paid as contribution by each member state. 85% of the votes is required to modify the IMF Charter (which means that the USA with 17,68% % of the votes has a de facto veto on any change).

The institution is dominated by five countries: the United States (16,74%), Japan (6,23%), Germany (5,81%), France (4,29%) and the UK (4,29%).
The other 183 member countries are divided into groups led by one country. The most important one (6,57% of the votes) is led by Belgium. The least important group of countries (1,55% of the votes) is led by Gabon and brings together African countries.
declarations that do not please European leaders

In October 2012, the IMF provided a key explanation of why the crisis was getting worse in Europe. Its Research Department wrote that every euro cut from public spending would result in a .90 to 1.70 euro decrease in Gross Domestic Product GDP
Gross Domestic Product
Gross Domestic Product is an aggregate measure of total production within a given territory equal to the sum of the gross values added. The measure is notoriously incomplete; for example it does not take into account any activity that does not enter into a commercial exchange. The GDP takes into account both the production of goods and the production of services. Economic growth is defined as the variation of the GDP from one period to another.
(GDP). Wolfgang Münchau, who is editorialist at the Financial Times, concludes that in this time of crisis a 3% fiscal adjustment (that is a 3% decrease in public spending) would produce a 4.5% decrease in GDP. Therefore, the current policies being pursued by European governments have been leading to a drop in economic activity making it impossible to decrease the amount of public debt. As Wolfgang Münchau writes, the IMF’s motivation must not be misjudged: “The IMF does not say that austerity is too hard, too unfair, causes too much pain in the short term or hits the poor more than the rich. It says simply that austerity may not achieve its goal of reducing debt within a reasonable amount of time” [1]

Meanwhile, if IMF Managing Director Christine Lagarde hinted that the beginning of some austerity measures should be spread over a longer period of time, and that it might be possible to increase some public spending in order to stimulate the economy, this is because she is under pressure from IMF members from emerging countries (especially the Brics, led by China and Brazil), which are fearful of the boomerang effect of the drop in European imports, and criticise the importance of the IMF’s financial engagement in Europe. The IMF’s Managing Director expressed this point of view in Tokyo, at the annual assembly of the IMF and World Bank World Bank
The World Bank was founded as part of the new international monetary system set up at Bretton Woods in 1944. Its capital is provided by member states’ contributions and loans on the international money markets. It financed public and private projects in Third World and East European countries.

It consists of several closely associated institutions, among which :

1. The International Bank for Reconstruction and Development (IBRD, 189 members in 2017), which provides loans in productive sectors such as farming or energy ;

2. The International Development Association (IDA, 159 members in 1997), which provides less advanced countries with long-term loans (35-40 years) at very low interest (1%) ;

3. The International Finance Corporation (IFC), which provides both loan and equity finance for business ventures in developing countries.

As Third World Debt gets worse, the World Bank (along with the IMF) tends to adopt a macro-economic perspective. For instance, it enforces adjustment policies that are intended to balance heavily indebted countries’ payments. The World Bank advises those countries that have to undergo the IMF’s therapy on such matters as how to reduce budget deficits, round up savings, enduce foreign investors to settle within their borders, or free prices and exchange rates.

in October 2012. The IMF document and Christine Lagarde’s recommendations made European leaders react with discontent. For example, in Tokyo, Wolfgang Schaüble, the Finance Minister of Merkel’s government, publicly criticised Christine Lagarde for her untimely remarks. [2]

Wolfgang Münchau considers that the reservations expressed by the IMF on the depth of the austerity measures will in no way modify the attitude of European leaders who are sticking to a hard line position: “European policy makers are paranoid about their credibility, and I expect them to hold on to austerity until the bitter end, when the policy implodes” [3]

The tension between the IMF and the European Commission was expressed publicly again on 14 November 2012. Christine Lagarde contradicted the optimism expressed by Jean-Claude Junker (Luxembourg), who is President of the Eurogroup, concerning the outlooks for Greece. The IMF seems to want to put pressure on the Commission in order to increase its influence on the direction that should be taken in Europe. Emerging countries and the United States have been taking action within the IMF to influence the solutions adopted concerning the European crisis, especially since they are being asked to make a financial contribution.

The IMF looks back on the historical failures of brutal austerity policies

Much has been written about another IMF study, a chapter in its World Economic Outlook report, which was published just before its annual assembly in October 2012. In this chapter, the IMF studies 26 public debt crisis episodes since 1875, in which public debt was greater than 100% of GDP. It analyses the policies that were applied to resolve these crises. One of the episodes analysed was that of the United Kingdom after the First World War. British public debt stood at 140% of GDP. The British government applied a radical policy of fiscal austerity combined with a stringent monetary policy. By making large cuts to expenditures, the government achieved a primary fiscal surplus of nearly 7% of GDP (before the payment of interest Interest An amount paid in remuneration of an investment or received by a lender. Interest is calculated on the amount of the capital invested or borrowed, the duration of the operation and the rate that has been set. ) throughout the 1920s, in order to reduce British debt by strictly paying it back. However, public debt did not decrease: in 1930, it was 170% of GDP, and three years later in 1933, it was more than 190% of GDP.

Martin Wolf, the chief economics commentator at the Financial Times, states that the real objective of the British government policy “was to break organised labour. These policies resulted in the general strike of 1926. They spread a bitterness that lasted decades after the second world war.” [4] This is exactly what is being done in Europe today. [5] Wolf suggests that European policymakers and the Spanish government of Mariano Rajoy want to push down wages drastically by using unemployment as a weapon. He states that: “Meanwhile, Spain’s real GDP is shrinking. Efforts to tighten fiscal policy are sure to reduce it further.” He continues his analysis by stating that the Italian government has been inspired by the same policy. He concludes with a statement that may seem unusual coming from a star journalist at one of the principal financial dailies on the planet: “But fiscal austerity and efforts to lower wages in countries suffering from monetary strangulation could break societies, governments and even states.” In fact, as Martin Wolf has been insisting for months, it is because of austerity measures that countries are heading straight for disaster. As proof of his analysis, he points to the overwhelming electoral defeat of Mario Monti in March 2013 in Italy.

As Wolfgang Münchau writes, European policymakers are going to continue pursuing and aggravating these policies.

Why are European policymakers pushing for such harsh austerity policies?

It would be a mistake to believe that European policymakers have become blind. Their motivation is neither to return to economic growth, nor to balance Balance End of year statement of a company’s assets (what the company possesses) and liabilities (what it owes). In other words, the assets provide information about how the funds collected by the company have been used; and the liabilities, about the origins of those funds. the asymmetric relationships within the eurozone and the EU, so as to create a more coherent whole in which prosperity would reign. Corporate leaders, who shape government action, would like to push forward their great offensive against the hard-won social rights obtained in Europe after the Second World War. From this point of view, the policies pursued recently have been very successful. With the austerity policies that have increased unemployment, workers find themselves in an increasingly precarious position, their capacity to resist and fight has been radically decreased, wages and the various social benefits have been reduced while the tremendous disparities between workers within the EU have been maintained so as to increase the competition between them. One of the objectives pursued by European policymakers is to improve the capacity of European companies to increase their market share Share A unit of ownership interest in a corporation or financial asset, representing one part of the total capital stock. Its owner (a shareholder) is entitled to receive an equal distribution of any profits distributed (a dividend) and to attend shareholder meetings. throughout the world. To accomplish this goal, the “cost of labour must be radically cut”, as they would say. That would imply inflicting a major defeat on European workers. Other objectives are also being pursued: pushing even further the offensive against public services, avoiding as much as possible a new crash in the banking sector, further strengthening the executive powers (the European Commission and national governments) over the legislative powers, imposing tighter constraints through treaties that set in stone policies that favour the Capitalist agenda…

The political and electoral price to pay may be high, but generally speaking the major political families that dominate European politics have made the bet that even if they lose in the current elections, they will win in the next ones and return to power. In any case, moving over to the opposition does not mean losing a whole set of privileges already acquired in the central State government apparatus, and European institutions, not to mention the local powers they may have (in big cities, regional governments, and so on).

What is complicating the European policymakers’ project is the Obama administration’s decision to pursue radical austerity policies in the footsteps of the Bush administration. In particular, fiscal cuts in public and social spending are going to be even deeper in the United States. These reductions will not help European companies win market share there. Only Japan seems to be willing to adopt what is only a half-hearted stimulus policy, but this must still be confirmed.

Conclusion: In light of the objectives described above, there is a total convergence between the IMF and European policymakers. Furthermore, since December 2012, when the Obama administration announced that it intended to tighten austerity measures in the United States, we have no longer heard any critical declarations by Christine Lagarde or other leaders aimed at the IMF concerning the policies pursued in Europe.

We must not misjudge the deeper meaning of the IMF’s declarations: if it has taken a bit of distance with respect to European policymakers, it is not to convince them to abandon the structural adjustment Structural Adjustment Economic policies imposed by the IMF in exchange of new loans or the rescheduling of old loans.

Structural Adjustments policies were enforced in the early 1980 to qualify countries for new loans or for debt rescheduling by the IMF and the World Bank. The requested kind of adjustment aims at ensuring that the country can again service its external debt. Structural adjustment usually combines the following elements : devaluation of the national currency (in order to bring down the prices of exported goods and attract strong currencies), rise in interest rates (in order to attract international capital), reduction of public expenditure (’streamlining’ of public services staff, reduction of budgets devoted to education and the health sector, etc.), massive privatisations, reduction of public subsidies to some companies or products, freezing of salaries (to avoid inflation as a consequence of deflation). These SAPs have not only substantially contributed to higher and higher levels of indebtedness in the affected countries ; they have simultaneously led to higher prices (because of a high VAT rate and of the free market prices) and to a dramatic fall in the income of local populations (as a consequence of rising unemployment and of the dismantling of public services, among other factors).

policies that are favourable to privatisations and a more intense offensive against the social rights won after the Second World War. It would like to have more influence on the decisions made, and impose its own. We shall see in the upcoming months whether or not it continues asserting that it would be a good idea to slow down the rhythm at which European policymakers want to balance their budgets. While the research produced by some IMF departments contains arguments that contradict dominant policies more or less clearly, the IMF’s actions throughout the world have not changed an iota. These are the actions against which we must combat with all our force.

Translated by Mike Krolikowski and Charles La Via

Part 1
Part 2
Part 3
Part 4
Part 5
Part 6
Part 7

Eric Toussaint, Senior Lecturer at the University of Liège, is the President of CADTM Belgium (Committee for the Abolition of Third-World Debt), and a member of the Scientific Committee of ATTAC France. He is the author, with Damien Millet, of AAA. Audit Annulation Autre politique (Audit, Abolition, Alternative Politics), Seuil, Paris, 2012.


[1Wolfgang Münchau, “Heed the siren voices to end fixation with austerity”, Financial Times, 15 October 2012.

[2Financial Times, “German minister rebukes IMF head. Schaüble criticises Lagarde call to ease up on austerity”, 12 October 2012.

[3Wolfgang Münchau, “Heed the siren voices to end fixation with austerity”, Financial Times, 15 October 2012.

[4Martin Wolf, “Lessons from history on public debt”, Financial Times, 09.10.2012,

[5See Eric Toussaint, “The greatest offensive against European social rights since the Second World War”, Part 3 in the series Banks versus the People: the underside of a rigged game!, published on 12 January 2012,

Eric Toussaint

is a historian and political scientist who completed his Ph.D. at the universities of Paris VIII and Liège, is the spokesperson of the CADTM International, and sits on the Scientific Council of ATTAC France.
He is the author of Greece 2015: there was an alternative. London: Resistance Books / IIRE / CADTM, 2020 , Debt System (Haymarket books, Chicago, 2019), Bankocracy (2015); The Life and Crimes of an Exemplary Man (2014); Glance in the Rear View Mirror. Neoliberal Ideology From its Origins to the Present, Haymarket books, Chicago, 2012, etc.
See his bibliography:
He co-authored World debt figures 2015 with Pierre Gottiniaux, Daniel Munevar and Antonio Sanabria (2015); and with Damien Millet Debt, the IMF, and the World Bank: Sixty Questions, Sixty Answers, Monthly Review Books, New York, 2010. He was the scientific coordinator of the Greek Truth Commission on Public Debt from April 2015 to November 2015.

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