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?
Special edition of China Analysis
Essay collection on China's rise and Asia's response.
Chinesische Experten und Intellektuelle analysieren im ECFR-Essayband „China 3.0“ die politischen Trends, die das neue China ausmachen.