I.M.F. Chief to Face French Investigation

Published: August 4, 2011

A French court said Thursday it would investigate the role of the new head of the International Monetary Fund, Christine Lagarde, in a $400 million arbitration deal in favor of a controversial tycoon.

Ms. Lagarde was France's finance minister when the magnate, Bernard Tapie, won a settlement in 2008 with a French state-owned bank over the mishandled sale of the sportswear maker Adidas in the 1990s.

A commission at the Court of Justice of the Republic decided Thursday an investigation should be started over Ms. Lagarde's role.

A commission at the Court of Justice of the Republic decided Thursday an investigation should be started over Ms. Lagarde's role. A prosecutor has said he suspects Ms. Lagarde abused her authority in allowing the arbitration.

Ms. Lagarde took over as managing director of the I.M.F. last month after her predecessor, Dominique Strauss-Kahn, quit to face charges he tried to rape a New York hotel maid.

A huge fight has already erupted over how to count the costs of extending tax cuts for high-income people, which are due to expire at the end of 2012. Republicans want to extend the tax cuts, but Democrats want the cuts for more affluent people to expire.

Congressional leaders have two weeks to name panel members. Names of candidates were circulating Wednesday on Capitol Hill, and some lawmakers have been quietly promoting themselves or their friends for spots on the 12-member panel, which will consist of equal numbers of Republicans and Democrats from the House and the Senate.

Lobbyists scrambled Wednesday to figure out how to influence the new panel to protect the programs and tax breaks from which they benefit. Military contractors and health care lobbyists were particularly active, as they have the most to fear.

The panel, known as the Joint Select Committee on Deficit Reduction, will have three months, until Nov. 23, to forge an agreement on divisive issues that have defied solution for decades.

The options on the table have been studied by numerous expert panels, including several in the past year. The problem is not so much determining how to align the government's revenues and spending; it is in reaching a compromise on the specific elements of a plan and then finding the political will to enact the necessary spending cuts, tax increases or both.