Larry Elliott and Decca Aitkenhead
In an uncompromising interview with the Guardian, Lagarde insists it is payback time for Greece and makes it clear that the IMF has no intention of softening the terms of the country's austerity package.
Using some of the bluntest language of the two-and-a-half-year debt crisis, she says Greek parents have to take responsibility if their children are being affected by spending cuts. "Parents have to pay their tax," she says.
Greece, which has seen its economy shrink by a fifth since the recession began, has been told to cut wages, pensions and public spending in return for financial help from the IMF, the European Union and the European Central Bank.
Asked whether she is able to block out of her mind the mothers unable to get access to midwives or patients unable to obtain life-saving drugs, Lagarde replies: "I think more of the little kids from a school in a little village in Niger who get teaching two hours a day, sharing one chair for three of them, and who are very keen to get an education. I have them in my mind all the time. Because I think they need even more help than the people in Athens."
Lagarde, predicting that the debt crisis has yet to run its course, adds: "Do you know what? As far as Athens is concerned, I also think about all those people who are trying to escape tax all the time. All these people in Greece who are trying to escape tax." She says she thinks "equally" about Greeks deprived of public services and Greek citizens not paying their tax.
"I think they should also help themselves collectively." Asked how, she replies: "By all paying their tax."
Asked if she is essentially saying to the Greeks and others in Europe that they have had a nice time and it is now payback time, she responds: "That's right."
The intervention by Lagarde comes after the caretaker Greek government met to discuss a sharp fall in tax revenues – down by a third in a year. Under the terms of the country's bailout, Athens has agreed to improve Greece's poor record for tax collection in order to reduce its budget deficit, and Lagarde's remarks are evidence of a growing impatience in the international community. Reports surfaced in Germany and France of preparations being made to cope with Greece's possible departure from the single currency after its election on 17 June.
Belgium's deputy prime minister, Didier Reynders, said it would be a "serious professional error" if central banks and companies did not prepare for an exit.
The euro came under fresh attack on the foreign exchanges, dropping below €1.25 at one point on Friday, as the Spanish government was in talks to pump up to €19bn of rescue finance into Bankia, one of the country's biggest banks, and the Catalan regional government sought financial help from Madrid to deal with its debts.
Signs emerged of a widening gulf between Germany and France over whether common eurobonds should be issued to help those countries, such as Greece and Spain, with high interest rates on their debt.
Jens Weidmann, president of the Bundesbank, poured cold water on the idea – which is strongly backed by the French president, François Hollande – and also said financial aid to Greece should be cut off if it failed to keep to the bailout deal.
Jürgen Fitschen, joint head of Germany's biggest bank, Deutsche, described Greece as "a failed state … a corrupt state". Separately, however, there were reports suggesting that the chancellor, Angela Merkel, was dusting down the economic modernisation plan used to revive East Germany after the fall of communism in the belief that similar measures could be applied to Greece and other struggling eurozone countries. Today's Der Spiegel magazine says Merkel will present a six-point plan based on the East German blueprint as a growth strategy. It includes measures such as privatisation, looser employment law and lower tax rates.
Opinion polls are pointing to a close race between parties backing and opposing the terms of Greece's €130bn bailout, but neither Germany nor the IMF has demonstrated any willingness to water down Greece's austerity programme.
In her interview Lagarde says Greece is not getting softer treatment than a poor country in the developing world, and that the IMF does not find it harder to impose strong conditions on a rich nation.
"No, it's not harder. No. Because it's the mission of the fund, and it's my job to say the truth, whoever it is across the table. And I tell you something: it's sometimes harder to tell the government of low-income countries, where people live on $3,000, $4,000 or $5,000 per capita per year, to actually strengthen the budget and reduce the deficit. Because I know what it means in terms of welfare programmes and support for the poor. It has much bigger ramifications."