SHORTLY after taking up the post of French economy minister in 2007, Christine Lagarde agreed to let a dispute between the government and a prominent businessman, Bernard Tapie, be settled by arbitration rather than in the courts. She has regretted it ever since. In 2008 the arbitrators awarded Mr Tapie a huge payout of €405m ($444m); Ms Lagarde was accused of failing to safeguard taxpayers’ money. On July 22nd one of France’s highest courts ruled that Ms Lagarde, now the head of the International Monetary Fund, must stand trial for negligence. She denies the charges. 
The scandal over the payout to Mr Tapie centred on charges of political cronyism. The businessman contended that Credit Lyonnais, a defunct state-owned bank, had given him bad advice when he sold his stake in Adidas, a sportswear company, in 1993. He thought the state owed him money. The government fought Mr Tapie in the courts until 2007, when Nicolas Sarkozy became president and appointed Ms Lagarde, who agreed to go to arbitration. Mr Tapie had supported Mr Sarkozy’s election campaign. Critics alleged the decision to settle the case was payback.


The arbitrators’ decision was quickly annulled by a court, and the government never paid Mr Tapie the €405m. And Ms Lagarde has since been absolved of the critics’ most serious charges. In its ruling, France’s Court of Cassation underlined that she had no personal relationship with anyone involved in the case, and had not influenced the appointment of the arbitrators. But it said her decision to move to arbitration rather than letting the courts decide the case, against the advice of state agencies, demonstrated a “haste and lightness that constitute grave negligence on the part of a minister”.
Ms Lagarde says that while she saw nothing unusual in the move to arbitration at the time, she now realises she was “too naive”. The IMF is standing by its director: in a statement, it said it retains faith in her ability to perform her duties. Compared with her predecessor, Dominique Strauss-Kahn, who resigned after being arrested on rape charges (which were later dropped) and who faced allegations of conflicts of interest over his patronage of sex parties, Ms Lagarde’s scandal seems rather tame. But the French court may not agree. If convicted, she could face a €15,000 fine and up to a year in jail.