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ROBERT SIEGEL, HOST:

Joining us in her office is the managing director of the International Monetary Fund, Christine Lagarde. Money managing director, welcome to the program.

CHRISTINE LAGARDE: Thank you very much.

SIEGEL: We've all been following the debt crisis in Greece. The European Union and the IMF have demanded the kind of austerity there that, in the past, typically came along with a currency devaluation. Greece is in the eurozone. They can do that. How exactly, if they keep on cutting wages and pensions and government services, how do they work their way back to economic health?

LAGARDE: Coming back to economic health, coming back to markets, improving the situation of public finances is exactly the goal that we, together with other European partners, have for Greece. Because the whole point of the exercise is to make sure that Greece is back on its feet and can actually operate by itself without, you know, crutches and support and the kind of money that is being put into the program.

It's difficult. Why is it difficult? Because for years, the Greek authorities have not paid attention to the competitiveness. They have been quite complacent about all sorts of thing. They've not been the only one. The banks have been quite complacent as well because they regarded the whole monetary zone as one single risk area. And some of them probably assumed that lending to Germany or lending to Greece was pretty much the same thing.

SIEGEL: So the lenders share some responsibility here for the problems they now face?

LAGARDE: I think, you know, responsibilities are scattered all over the map. Let's face it. And, you know, the question is, how does the country move forward?

SIEGEL: There was an interview that the German interior minister gave a few days ago in which he said, well, perhaps Greece would be better off outside the eurozone than inside the eurozone. Do you detect a greater willingness in Europe to think about what has seemed unthinkable over the past year or so, which was Greece bailing on the euro and going back to the drachma?

LAGARDE: You know, lots have things have been major changes in Europe in the last couple of years and, true, at the time when the euro currency was set up, nobody was thinking of a country in the eurozone needing an IMF/European support program. It was just, you know, unthinkable. So lots of things have been unheard of lately.

And the whole purpose of the exercise, whether we like it or not, has been to adjust constantly to make sure that we kept stability around the planet because it's not just a Greek issue. It's an issue for everybody.

SIEGEL: But among the things that were unthinkable and that have now become thinkable. Is a eurozone member dropping out of the currency now something that has to be thinkable?

LAGARDE: You know, it was raised by some of the European leaders back in November, at the time of the G20 leader's summit in Cannes. All the noises that I have heard from leaders were on the contrary, that Greece had to stay within the zone, provided it implemented the program, provided that it was rigorous and serious about doing what it has to do, meaning opening up the economy, making it more flexible, reforming the labor market, making the tax collection system more efficient.

And there are multiple dimensions to the exercise that include, you know, a degree of fairness as well.

SIEGEL: Just before leaving Greece, do you and should we regard Greece as an outlier, as a small economy that was in deep trouble before and wasn't managing its books very well and therefore different in degree and perhaps in nature of its economic problem from the other countries in the periphery of Europe or is it a good preview of what could be happening elsewhere within the eurozone?

LAGARDE: I think Greece is a very, very special case. And the European authorities have made a point of tailoring, designing with us, the Greek program as a special program and one that will not be duplicated across the area. And it's true that, you know, numbers have been challenged, revisited over time and that we had a real issue of, you know, those numbers and those statistics being reliable. And it...

SIEGEL: You mean, the numbers that the Greeks were giving you.

LAGARDE: Yeah, yeah.

SIEGEL: ...about their own economy.

LAGARDE: Absolutely.

SIEGEL: Do you sense any change, say, in German policy toward an acknowledgement that there has to be more of a pro-growth policy, less of an emphasis on austerity for all?

LAGARDE: Yes. I definitely think that many countries, including Germany, are convinced that there has to be a pro-growth path. Where there is a debate is how do you fuel that growth. Do you fuel it by massive public spending, stimulus packages, or do you fuel it by intelligent, pointed structural reforms that will really unleash growth by market players?

SIEGEL: Madam Lagarde, I just want to get a sense of your sense of where we are right now. That is, it seems people who follow Europe's travails in the news every few months, were at the edge of the precipice, there's another conference and some packages put together to bring the continent back. Does this actually amount to a policy that is moving forward? Is Europe still essentially improvising and are we at an important moment to come up with a new idea, a new conceptualization for what you're doing about Europe's problems?

LAGARDE: It's work in progress. Let's face it. And it's a huge work. Think about it for a second. Seventeen countries, independent, with their respective defense, their respective tax collection system, their respective national anthem, their respective currency, having decided to pool the lot together.

SIEGEL: Some say that's the problem. That there's still 17 countries with their own policies and their own national anthems and all that goes with it.

LAGARDE: That's the challenge. It's a problem, it's a challenge and maybe it's a solution to many things, as well. But it's clearly work in progress and it is strengthening by the day. The European states have done a lot to actually improve their situation. But, you know, it's putting so much in common and trying to be strong together, rather than individually a bit weak, that it's an exercise that needs to be encouraged.

SIEGEL: Well, Managing Director Christine Lagarde of the International Monetary Fund, thank you very much.

LAGARDE: Thank you.

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