European impact in the multilateral system

71 - European policy on the financing of multilateral institutions

Grade: B
Unity 4/5
Resources 4/5
Outcome 5/10
Total 13/20

The EU helped persuade emerging economies to take a greater role in funding international financial institutions, but more radical reform proposals have faltered.

The EU’s members play a huge role in the financing of multilateral institutions, providing between 30 and 40 percent of the financing for the international financial institutions and the UN’s core budget. They provide a larger share of voluntary contributions in areas such as development (component 79) and humanitarian operations (component 74). Even prior to the financial crisis, EU members were concerned by the fact that emerging economies including China and India were not making contributions to international organisations comparable to their new financial clout. During the crisis, the UK, France and Germany have pressed this issue.

The main opportunities to address this issue in 2010 centred on the international financial institutions, while the scale of contributions to the UN will be debated in 2011. Although the EU approach to IMF reform was confused through much of 2010 (see component 69), it was agreed first that the IMF’s financial quotas (defining the maximum possible contributions from its members) should double to over $700 billion, and second that China, India and other emerging economies should take on larger “quota shares” than before.

While the EU’s members increased their gross financial commitments to the IMF, therefore, this is partially off-set by the emerging economies’ higher contributions. This was broadly in line with goals set by European leaders earlier in the financial crisis, despite the difficult reform negotiations. The World Bank’s financial base was also expanded in 2010, with members donating $5.1 billion of ready money, nearly a third of which came from emerging economies in return for additional voting rights. However, it is clear that emerging economies prefer to direct development aid bilaterally rather than via multilateral institutions, while French-led proposals to fund development through an international transactions tax have gained support from powers including Brazil, but they remain controversial (see component 79).