Christine Lagarde 'Can't Imagine' United States Would Default on Debt

Head of IMF discusses debt negotiations and replacing Dominique Strauss-Kahn.

ByABC News
July 10, 2011, 5:45 AM

July 10, 2011— -- As the White House continues negotiations with congressional leaders over a budget deal this weekend, newly elected head of the International Monetary Fund Christine Lagarde says that she "can't imagine for a second" that the United States would default on its debt obligations, saying it would be "a real shock" to the global economy if no agreement is reached.

"I can't imagine for a second that the United States would default," Lagarde told "This Week" anchor Christiane Amanpour in an exclusive interview. "But, clearly, this issue of the debt ceiling has to be resolved."

"It would be a real shock, and it would be bad news for the U.S. economy," Lagarde added on the threat of the U.S. not raising the debt ceiling. "So I would hope that there is enough bipartisan intelligence and understanding of the challenge that is ahead of the United States, but also of the rest of the world."

The IMF was created after World War II by the U.S. and its European allies to oversee the global economy and be a lender of last resort to countries in financial trouble, while also promoting global employment and growth.

Lagarde, who previously served as France's finance minister, said there could be "real nasty consequences," including rising interest rates, depressed stock markets, increased unemployment, and decreased investment if a deal is not reached by the Aug. 2 deadline facing the United States.

"It would certainly jeopardize the stability, but not just the stability of the U.S. economy, it would jeopardize the stability at large," Lagarde said. "And that's clearly against the purpose and the mission of the International Monetary Fund. So we are concerned and we are very much hoping that a compromise will be found before the deadline."

Succeeding Dominique Strauss-Kahn

Lagarde is the first woman to serve as managing director of the IMF, taking over the position last week following the resignation in May of Dominique Strauss-Kahn, who is currently battling charges that he sexually assaulted a New York hotel maid. That case is now in question because of doubts about the accuser's credibility.

The IMF is still reeling from the drama surrounding Strauss-Kahn, who Lagarde said did "an excellent job" as managing director during his tenure.

"When an institution loses its managing director under such circumstances, there is clearly wounds as a result," Lagarde said. "Some people are very hurt. Other people feel betrayed. It's a very strange chemistry of frustration, irritation, sometimes anger, sometimes very deep sadness as well."

Because of the fallout from the Strauss-Kahn case, Lagarde's contract at the IMF includes specific language about ethical behavior, saying, "You shall strive to avoid even the appearance of impropriety in your conduct."

Lagarde will also participate in one-on-one training sessions this week with the IMF ethics chief.

"My contract states very clearly that I have to abide by the highest ethical principles," Lagarde said. "And I have to be on my best behavior all the time. And I'll try to do so."

"In the back of my mind, when it comes to ethics and whatever I do, I always think to myself, would my mother approve of that?" Lagarde added. "And if she did not, then there's something wrong. It's a basic, stupid principle, maybe, to have. But it's something quite handy and quite efficient."

Lagarde has said she will promote diversity at the IMF, which has been criticized for condoning a hostile work environment where unwanted sexual advances toward women are often the norm.

"We clearly need to all work together, respect each other," Lagarde said. "And everybody needs respect, not just women, men as well. We are a community and everybody is entitled to respect."

Regardless of the outcome, Lagarde said she believes the Strauss-Kahn case may have helped open a debate among women in France to speak out against harassment.

"Whatever the damage – and there is damage, obviously – I believe it has helped women to appreciate that they should speak up whenever something happens to them that is not respectful, that is not tolerable," Lagarde said.