Sections of the British press are calling for an open, international ‘competition’ to be held to decide on the next head of the IMF. Along with this post and that at the World Bank, typically the Europeans and the Americans have kept them for themselves.

We agree that the position should be chosen on merit, but we would still opt for a European this time round.

Christine Lagarde, France’s talented Minister of Finance, is, among many other things, a deficit hawk. Indeed, perhaps the better analogy might be a Napoleonic eagle among deficit hawks. She was one of the first to urge sound money after the 2008 crisis, from which France has emerged, as a result of her fiscal discipline, far more strongly than French industry may deserve. This is her strongest qualification – and the reason President Obama might veto her appointment to the IMF. It is sometimes recorded as a “gaffe” that she said the economic crisis was over by the end 2008 – but, in fact, she was right: the moment crisis had passed by then. True or not, however, it is not what those still struggling with the consequences want to hear.

She is also, unlike Dominique Strauss-Kahn, who is currently facing allegations of rape in the USA, and the vast majority of modern politicians, an accomplished leader in her own right with an outstanding track record in the private sector. She is a leading commercial lawyer and the first woman chairman of a major international law firm. Any private sector experience is a breath of fresh air in politics these days, and her achievements in business make her doubly welcome in public life.

It is no surprise that she speaks better English that most English people, and, even when interviewed in this second language of hers, she comes across as more confident and better informed than most British politicians. Her intellectual superiority over the mass of party hacks shines through every time.

Finally, she is, of course, a woman, but a woman whose qualifications and experience ensure that no one could ever question that her appointment was on merit or accuse her of being a “token woman”. Of course, gender should never in principle be an issue in the selection for any post, but, in this particular case, it would be a nice bonus to know that her term at the IMF would be most unlikely to end in the same way as her predecessor’s.

A book about the 1920s written in the 1970s is again oddly topical.

Adam Fergusson’s When Money Dies analyses the hyperinflation that wrecked the German economy under the Weimar Republic. It has become something of an underground classic since being recommended by Warren Buffett in the wake of the 2008 crisis.

It seems particularly relevant in the light of the latest British inflation figures. They are nothing like the old Weimar levels, nor is there any serious prospect of them reaching those levels, but the danger of inflation is precisely that it seems so innocuous at first.

It operates on the same basis as drug addiction. At first, taken in small quantities, the drug makes the future addict feel good and seems to do no harm. In the same way, inflation gives the illusion that more wealth is circulating, which makes everyone feel better: order books are full, business has access to cheap capital, unemployment is reduced, and a depreciating currency helps exports. So it seems a little more will do no harm... then a little more... then a little more...

Soon the situation is out of control. The decision to take another fix is revealed as less and less of a free choice, as the addiction takes on a momentum of its own. Kicking the habit will involve pain and suffering. That thought is enough to postpone it – but the longer it is postponed, the greater the pain and suffering will have to be. That thought prompts further postponement.

Finally, the inevitable crisis forces a choice, or takes all choice away – as the patient collapses, or comes under the control of an external authority: the drug addict is committed or imprisoned; the inflationary state is forced to hand control of its economy over to the IMF.

Inflation is, in effect, a country borrowing from its own future – and at a high rate of interest. An old fashioned view of economics has inflation as an alternative to unemployment, but inflation is at best a postponement of unemployment. Sooner or later, the underlying weaknesses of an economy must be addressed – and the later one leaves it, the harder that process will be.

Eire, the Republic of Ireland, is a classic example of how low business taxes can generate prosperity even in the most unpromising of places. Although Irish people around the world are very entrepreneurial, the Republic itself was an economic backwater for most of its history. That changed when tax cuts attracted massive inward investment and turned Ireland into the “Celtic Tiger”.

The fact that Ireland is now in financial trouble does not alter that fact that it proves the effectiveness of a low tax regime. The current crisis arose in spite of Ireland’s success as a venue for inward investment, not because of it.

The low business taxes remain Ireland’s greatest competitive advantage – so it is sad that the Republic is almost certainly going to have to give them up.

The Republic’s mistake was not its low taxes but its failure to exploit their success in attracting inward investment. Instead of using the opportunity to develop its own indigenous enterprise culture, the Republic enlarged its already bloated public sector. Instead of investing in the capacity to generate even greater prosperity, Ireland’s politicians became addicted to higher spending.

So the global banking crisis only exposed that the Tiger was more of a kitten than it appeared. Bailing out Ireland’s banks increased state spending even more, and the government made the problem worse by adopting a strategy of hoping it would go away if they ignored it.

The European Union has now stepped in to bail out the Republic itself – but at a price. It is hardly surprising that the national governments who are providing the actual cash – Ireland’s competitors in Europe as well as “partners” – demand that taxes go up in return. They have long been jealous of the competitive advantage Ireland has enjoyed as a result of low taxes, and so they can hardly be expected to underwrite it.

That is why the Irish have been reluctant to accept the bail out. Without those low taxes, the economic future of Ireland looks grim. A virtuous circle may be replaced by a vicious circle – higher tax rates reduce the tax base and so increase demand for even higher tax rates. Ironically, this may mean that the very people who are insisting that the Republic raise taxes may end up paying even more than they intended to underpin the Irish economy.    

What are we to make of the UK’s higher than expected 1.1% growth in the last quarter?

Not too much. It is a one-off combination of a slight rise in confidence as a result of having a new government and the economic effects of the high spending policies of the previous government.

Neither will last. The high spending was always going to end after the General Election, irrespective of who won, and the novelty of having a new government will soon wear out when the spending ends and the cuts begin. There is no doubt that those cuts are necessary – indeed, long overdue – but they are going to hurt, and they are going to hurt business more than most. Many businesses rely on government contracts, and civil servants will cut outside contract before they cut their own numbers or salaries. Even businesses with no government contracts will see their overall markets contract.

Added to this is the weakness of the EU as a whole identified in a recent IMF report. This is the culmination of problems that have been building up for years – over-regulation of business, pension obligations, structural deficits, and all the other “usual suspects”. Some have been warning about these for years, but those in power have laughed at them and simply borrowed more money. Now the bill collectors are at the door.

Although the UK is guilty of some of the same economic crimes, Britain is not as badly exposed as some other EU states – at least not yet. The more immediate danger for British businesses is that their European markets may be contracting at the same time as their domestic markets.

However, we should not be too gloomy. The dreaded “double dip” recession still seems unlikely. Yet the fact that the Bank of England predicts that interest rates will remain low for some time is hardly a sign of confidence.

Things are never as bad as they seem – but they are never as good as they seem either.