IMF Meeting Takes Center Stage With Debt Crisis in the Wings
t happen until a full-blown crisis actually does occur.
"I don't expect anything meaningful to come out of any of these meetings," says Dick Bove, vice president of equity research at Rochdale Securities. "It's going to take a crisis, and Greece is not the crisis. A major European bank (failing) would be the crisis that tips off a solution."
Bove has been vocal in his call for a European version of the Troubled Asset Relief Program (TARP), the bank liquidity fund that many have credited for staving off a full collapse of the U.S. financial system in 2008. He suggests the U.S. Federal Reserve, the European Central Bank, and Chinese authorities combine to develop the euro TARP.
"They're the appropriate group to come up with a program which would guarantee the big banks in Europe, a program which would result in investments in those banks so the banks can write off the assets that need to be written down," Bove says. "Will that happen? Ultimately it's going to happen but it isn't going to happen until a major bank fails in Europe."
This week's meeting shapes up, then, as a test for Lagarde to show a path through the debt crisis if not a firm decision.
Investors likely will be watching closely, with speculation that a Greek default could be a seismic event for financial markets.
"The first thing we're going to see in my mind is some effective direction and leadership from the new leader of the IMF," says Rob Lutts, president and chief investment officer at Cabot Money Management in Salem, Mass. "The reason people were so enthusiastic about having her get into that position is she's no-nonsense."
Indeed, the IMF has been rattling sabers heading into the meat of this week's agenda, downgrading its economic outlook for the U.S. and Europe, and telling Europe to "get its act together" regarding its finances.
Lagarde says it's important for the IMF not only to help global governments financially, but also to deliver the proper message.
"We can lend money to those countries that are going through crisis...where they need to have a third party to come in as impartially as possible," she said. "We need to continue to do that, and I think the organization itself must reflect the diversity of the world. It must look like what the world is today and how it is going to evolve over time."