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Lagarde on trial: will the IMF lose its head?

Wherever she travels, Christine Lagarde receives head of state treatment. But back home in Paris this week, in the chamber where Marie-Antoinette was sentenced to death by guillotine during the French Revolution, the chief of the International Monetary Fund faced unimpressed judges and uncompromising former colleagues.

For five days in the small, wood-panelled room, she gave evidence and listened to damning testimonies that pointed to her alleged failings in preventing a fraudulent €403m payout to businessman Bernard Tapie when she was French finance minister under President Nicolas Sarkozy. Most of the time, she sat on a green leather armchair and diligently took notes. On Friday, Ms Lagarde eventually let her voice crack.

“These five days of hearings bring to an end five years of ordeal, for my family, my partner, my sons, my brothers, who are here, my friends, former members of my cabinet, and in the world and particularly in Washington those who follow this trial,” she told the black-cloaked judges, holding back tears.

Ms Lagarde’s trial, on charges of negligence, was always going to be a humbling experience. She sought to convince the tribunal that she had seen nothing coming when she was presented with the option to settle a longstanding dispute with Mr Tapie. She portrayed herself as a political novice who was too trustful of her staff and did not master the codes of the powerful administration she had under her watch.

Was I deceived? Were a number of us deceived? Perhaps. Was I negligent? No

Ms Lagarde admitted not reading internal memos advising against an out-of-court arbitration, that contradicted her chief of staff’s recommendation. She said she was kept unaware of an important meeting at the Elysée attended by her chief of staff — Stéphane Richard — and Mr Tapie. Challenged on her decision not to appeal the settlement, Ms Lagarde, a former lawyer, said she did so after carefully weighing the appeal’s chances of success.

“Was I deceived? Were a number of us deceived? Perhaps,” Ms Lagarde asked. “Was I negligent? No.”

A conviction — Ms Lagarde is facing up to one year in jail and a €15,000 fine — could weaken her position at the helm of the IMF and hurt her reputation. The Washington-based institution has stood by its chief throughout the dispute after Ms Lagarde convinced the executive board she would be exonerated. She has also had the backing of President François Hollande, who instructed the state prosecutor to request that the charges be dismissed.

But the peculiar nature of the court and the political sensitivity of the case make the outcome unpredictable. Ms Lagarde, 60, is not alone in being caught up in the scandal — Mr Tapie and Mr Richard are among those under formal investigation in a separate procedure. But she is the only one facing a special tribunal dedicated to judging ministers and comprised mostly of MPs with no legal training. It is the court’s fifth case since its creation in 1993.

Judge: ‘You said you didn’t read those notes, that you discovered them later. You must have been unhappy when reading them.’ Lagarde: ‘A finance minister is often unhappy’

“From a legal point of view, the case is weak, but you have to take into account the long-running resentment of the judiciary power towards the executive power, and the political dynamic among the MPs, between the left, the right,” a person close to Ms Lagarde said.

The IMF board is expected to meet on Monday, when the verdict will be announced. People close to Ms Lagarde say the IMF could reiterate its support even if she is found guilty, depending on the sentence.

Ms Lagarde’s line of defence seemed at times to irk the court president, Martine Ract Madoux, who pointed out that no fewer than 22 notes from the treasury unit that had sounded the alarm bell had been sent to her and that articles in the press had pointed at the suspicious nature of the arbitration.

“You said you didn’t read those notes, that you discovered them later. You must have been unhappy when reading them,” the judge snapped.

“A finance minister is often unhappy,” Ms Lagarde replied.

As for a scoop in Le Canard Enchainé, a well-informed weekly newspaper that politicians snap up every Wednesday, Ms Lagarde simply replied: “I don’t read Canard Enchainé.”

Wednesday marked a new low for the IMF chief, when former treasury head Bruno Bézard, the author of the alarming notes she read too late, and Thierry Breton, her predecessor at the finance ministry, questioned her abilities to oversee the ministry.

“Arbitration was the worst solution,” Mr Bézard said, adding: “Not attempting an appeal was a mistake.” Mr Breton said he would read “all the notes” addressed to him and handle the Tapie cases directly. “When one is a minister, there are no small duties,” Mr Breton lashed out.

The following day, Libération, the daily newspaper, wrote: “Is Christine Lagarde really dumb or is she doing it on purpose because she is a good soldier?”

The trial offered a glimpse of the complex affair, highlighting how the conditions for a settlement with Mr Tapie, a supporter of Mr Sarkozy during the campaign, fell into place shortly after Mr Sarkozy reached the presidency.

“A big chunk of the state apparatus was pushing in that direction,” Mr Bézard said. Asked to describe what he meant, he said: “Members of the government, Matignon [the prime minister’s office], the presidency, their close advisers.”

The arbitration was intended to end long-running litigation between Mr Tapie and the now defunct state-owned bank Crédit Lyonnais. The businessman — a fixture of French politics who started as a singer, made a fortune turning around companies and spent six months in prison in a football match-rigging scandal — contended then that the bank encouraged him to sell his stake in Adidas, the sports equipment company, for less than it was worth in 1993.

The state had initially fought the compensation claim but after Mr Sarkozy was elected president, it agreed to settle the case through arbitration. A Paris court last year annulled the arbitration on the grounds that it was fraudulent, suspecting that one of the arbitrators had colluded with one of Mr Tapie’s lawyers. Mr Tapie was asked to repay the state. Mr Tapie and Mr Richard deny any wrongdoing.

In court, François Pérol, a former economic adviser to the Elysée, described the constant and grinding lobbying efforts of Mr Tapie, saying he agreed to meetings with Mr Tapie in order to “get rid of him”, because otherwise he would “lay siege” to his office. Mr Tapie was “extraordinarily entrepreneurial” and extremely “tenacious,” and would go to the Elysée with one appointment and then march into other people’s offices while he was there to talk about the Adidas dispute, he noted.

Dressed in black with a colourful scarf, Ms Lagarde hinted at a wider political machination: “I should have taken into account all the risks. But the risk of fraud? I totally missed the risk of fraud.”

Additional reporting by Michael Stothard in Paris

Via FT