Do the EU’s leaders actually want to undercut confidence in the eurozone? The strident European response to the idea that, whisper it, a non-European might replace Dominique Strauss-Kahn as Managing Director of the IMF could prove counterproductive. Angela Merkel and a string of EU officials have argued that, given the IMF’s role in helping faltering eurozone economies, the Fund should remain under European leadership.
Do they fear that the situation in Greece or Portugal could get so dire that only a true EU believer can be trusted to assist? If so, do they imagine that the markets will not notice?
Strauss-Kahn’s fall has come at an especially bad time for the eurozone, with the markets’ confidence in Greece back in free-fall. Yet the heavy-handed EU drive to keep control of DSK’s former position is indicative of longer-term problems for Europe at the IMF.
Last year’s decision to involve the IMF in first the Greek bailout and then the broader European financial safety-net has left the EU unhappily reliant on the international officials in Washington. This was a source of concern for the French and Germans, who initially argued against involving the IMF in Greece, before accepting its inevitability.
Having tied themselves to the IMF, the EU’s finance ministers found themselves under severe political pressure to surrender some of their seats and voting rights on the Fund’s board. Although this was intended to benefit under-represented Asian economies, the bulk of the pressure came from the U.S., which used procedural maneuvers over the re-election of the IMF board last autumn to force the Europeans to cut a much-delayed deal.
At a G20 finance ministers’ meeting in October, the EU gave in. “Europeans failed to present a united front to Americans and emerging economies on reform of the IMF and the World Bank,” as ECFR’s European Foreign Policy Scorecard concludes, “and were in effect forced by the US to cede two seats at the IMF board without a significant concession in return (for example, on its veto right or its World Bank directorship) and without progress on the global package of governance reform they were seeking.”
So even before things went horribly wrong in that Manhattan Sofitel, European governments had reason to be nervous about who runs the IMF. At least having a European as Managing Director could off-set the changes in the composition of the board.
Now the Europeans are confronted with having to both reduce their political clout at the IMF and lose the top official post. And all this comes at the worst moment possible for the eurozone. It’s lucky that, in Christine Lagarde, the EU has a very credible candidate.
But it’s hardly as if the rest of the world is suggesting that Colonel Gaddafi should fill the vacancy to get him out of Tripoli. The leading non-EU candidates such as South Africa’s Trevor Manuel are top-class candidates too. What does the EU have to hide from them?
24th May 2011 at 07:05am
The whole lesson that Europe should have taken away from the earlier IMF-debacle about the voting rights is that its transatlantic partner is happy to sell Europe out to the emerging world. It wasn’t the US’ votes that were reduced in last years’ deal.
Europe should be smarter this time and reframe tthe debate about the position of IMF-director and enlarge it. Yes, the emerging powers should have the possibility to get the position. Yes, the selection should be based on merit. And lastly, yes, this should concern all positions in the bank system. Then you also include the World Bank and the American privilige and regional banks like ADB where the Americans have a power sharing arrangement with Japan.
This way Europe should get out of the fix that it looks old-fashioned and that it -apart from debt - clings onto privileges of the last Century.
Such a strategy would put the US in the fix as well. At the moment, the US is staying nicely on the sidelines talking nicely about meritious selection catering to the emerging countries and lauding compliments on European candidates like Lagarde to also please the Europeans.
The ECFR scorecard from 2010 showed how Europe was not realising how it should also maximise and protect its own interest in G-20. The right way to hold onto the IMF-position would be to argue for a grand deal opening all the senior bank positions to merit selection. Then expect Europe not to be the only one defending the status quo.
24th May 2011 at 02:05pm
This was a source of concern for the French and Germans, who initially argued against involving the IMF in Greece, before accepting its inevitability.
...what? Germany was the major country pushing FOR imf involvement. You can easily check it, as with the internet nothing ever gets lost. Your recollection of the whole afair seems a bit spotty…?
IIRC Greece threatend with “we could always go to the IMF if you dont give us the money and accept no oversight at all…” to which sarkozy responded “Oh no, not the IMF its DSK there and its demeaning for europe to have to listen to the imf…” and Merkel responded “Nice! Lets have the IMF, shall we. ”
At which point greece admited that it had bluffed and didnt want the IMF at all…
24th May 2011 at 03:05pm
This is taking us into some complex bits of history, but very early in the Greek crisis German politicians did oppose bringing in the IMF. Wolfgang Schaeuble said in one interview that involving the IMF would be an “admission that the euro countries can’t solve their problems by their own means.” See the quotation here:
However, you are absolutely right to say that, as the Greek crisis worsened, Germany became the crucial advocate for bringing in the IMF. Readers may find this timeline of articles useful:
So, I don’t think I’m wrong to say that the Germans were “initially” against involving the IMF in Greece, but that is a technicality. You are right about the overall arc of the debate! R.
26th May 2011 at 12:05pm
thank you very much for your links. I have to admit my own knowledge was pretty spotty, I didnt know about the initial actions at all. My timeline only started when Greece made first comments regarding that IMF help might be needed, I didnt know the IMF had alreeady offered help before that…
Thank you very much for this little history lesson,
30th May 2011 at 03:05pm
With reference to the abovementioned matter I would suggest to the ECFR to start a research project regarding the IMF reform, underlining what should the eu countries do and not do
26th September 2011 at 02:09pm
Referring to the previous question, I suggest the CEFR to start a research project on the reform of the IMF, emphasizing that the EU should do and not
28th July 2012 at 06:07am
Greeks have 700 thousand pelope working directly or indirectly thru the system. 700.000*1500euros*12=12 billion euros * 10 years = 120 billions + interest = 150-200 billions. Thats why they are in debt. Because they were not making money. They didnt produced many things. There is also a huge corruption between the ordinary pelope (when you buy a souvlaki they dont give you a receipt so the state doesnt take 20% ). And if you calculate all that, you can easily see that its 100% greeks fault.
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