Humphrey-Hawkins Meets the IMF

International Monetary Fund has issued a warning to France, telling the country that unless more spending cuts are implemented they will miss their plan to have the budget deficit 3% of output by 2013. reports the FT.

A new report from the IMF found that France's growth and tax revenues are unlikely to meet French expectations.

In order to make up the shortfall, the country should cut spending or face a downgrade, the fund recommended.

Just as the Humphrey-Hawkins legislation in the 1970s put a new burden on the U.S. Federal Reserve, that of seeking full employment, so did Madame Lagarde appear to add a mission for the IMF, which was founded after World War II to help manage international capital flows to ward off balance-of-payment crises.

Noting that joblessness and bleak career prospects for the young are a factor in not only unrest-gripped emerging nations but most developed countries as well, Lagarde told the Council on Foreign Relations that this issue is part of a “social instability” challenge to be met at the Fund. (It was one of three “challenges,” she said, the other two being sovereign debt and economic growth. Growth and social instability meet at the workplace. )

In an extension of that thought in her prepared text, not delivered, she also mentioned that “older generations are fighting to protect their health and pension benefits. Combine the two, and we may face a ‘clash of generations,’ to borrow a term coined by the scholar David Rothkopf.”

This area may come naturally to a woman who just spent four years as minister of economic affairs, finances and industry in France, a nation whose government actively tends to such things.

You might say, however, that Lagarde and the IMF will have their work cut out for them in tackling labor and benefits issues. As she herself acknowledged, her managing director post lacks direct international authority except when nations fall “under program” at the Fund, meaning that they require a workout to manage their monetary (and increasingly, economic) emergencies.

Perhaps in the gathering fiscal and financial storm, more sovereigns will yield to such suasion. (Some no doubt would like to see the politically-conflicted U.S. subjected to an IMF workout.) If Lagarde and her protean crew go on to tackle this nut on a global scale, we can hope that they show more skill in balancing financial stability with labor-force management than has the Humphrey-Hawkins Fed.