As Alex Barker from the FT has pointed out, this may refer to a conversation taking place before the European elections, which would, of course, make the story far less interesting.
Lagarde’s name has been bandied around before but has always been considered an outsider.
If there's truth in the report it would obviously be very good for the UK and David Cameron, who is a big fan of Lagarde (along with many others). Number 10 will also be hoping that this is Merkel’s first action to try to move away from Jean-Claude Juncker. While she has never been entirely keen on him, she has come under severe domestic pressure. Having a clear, credible alternative ready, such as Lagarde, would certainly help. That said, Merkel's spokesman has already come out to reject the report and reaffirm support for Juncker.
In any case, there remain a number of hurdles to her becoming the new Commission President over the current front-runner Juncker:
- It’s not clear yet if she wants the job. Sources suggest she has not ruled it out but her position as Head of the IMF remains an illustrious one and would be hard to walk away from.
- As Reuters notes, Hollande did not give a clear answer on whether he would back Lagarde. It would be a big ask given that she is from the opposition UMP party and Hollande could well fear it would make him look weak. If he accepted her it would be giving up the chance to appoint his own French commissioner who would likely still have a high level job within the new Commission. On the other hand, rejecting the opportunity to have a French head of the Commission may not play well with the French public.
- Europe will be loath to lose the IMF’s top job and may not retain it. After the Dominique Strauss-Kahn incident there was a sizeable fight over whether Europe should retain the position, with emerging markets stressing that the whole management system of the IMF is outdated given their increased size and relevance for the global economy. If Europe lost control at the top of the IMF it might find it hard to stop a sizeable overhaul of the whole institution, which has been coming for some time. It would also be the second time in recent history that France has walked away from the IMF’s top job – not a tag any country wants to wear.
- The European Parliament (EP) could still block her and may well do given its fierce desire to see the Spitzenkandidaten process upheld. On the other hand, they have also pushed for diversity and as a renowned female European politician, and a strong candidate, it could be difficult for the EP to vote her down.
Therefore, Lagarde remains a case of wishful thinking at the moment. But, as we've said before, this is still anyone's race so never say never...