The IMF: Europe fires back

It’s no secret that the Obama administration has been reorienting U.S. foreign policy toward Asia’s developing powers and, as a result, away from Europe. (Benign neglect, Roger Cohen has called it.) At the level of international institutions, this strategic shift has sometimes been confrontational. For months, the United States has pressured Europe to slim down ...

It's no secret that the Obama administration has been reorienting U.S. foreign policy toward Asia's developing powers and, as a result, away from Europe. (Benign neglect, Roger Cohen has called it.) At the level of international institutions, this strategic shift has sometimes been confrontational. For months, the United States has pressured Europe to slim down its large presence on the International Monetary Fund executive board and make room for underrepresented emerging economies.

At least one European official has had just about enough.

On the eve of an important board meeting, I sat down in IMF headquarters for an unusually candid talk with one of the organization's 24 executive directors. Klaus Stein has been Germany's representative on the Fund's executive board for the past four years and his frustration at the U.S. pressure was evident. (He spoke to me in his personal capacity and not as a German or IMF official.) The U.S. view that Europe is overrepresented, he argues, "is not only not fair, it's just wrong. But nevertheless politically it's the view prevailing and the Americans have managed to have a better public relations strategy." Klein is frustrated that Europe has not adequately explained its position and has allowed the U.S. interpretation to go largely uncontested.

It’s no secret that the Obama administration has been reorienting U.S. foreign policy toward Asia’s developing powers and, as a result, away from Europe. (Benign neglect, Roger Cohen has called it.) At the level of international institutions, this strategic shift has sometimes been confrontational. For months, the United States has pressured Europe to slim down its large presence on the International Monetary Fund executive board and make room for underrepresented emerging economies.

At least one European official has had just about enough.

On the eve of an important board meeting, I sat down in IMF headquarters for an unusually candid talk with one of the organization’s 24 executive directors. Klaus Stein has been Germany’s representative on the Fund’s executive board for the past four years and his frustration at the U.S. pressure was evident. (He spoke to me in his personal capacity and not as a German or IMF official.) The U.S. view that Europe is overrepresented, he argues, "is not only not fair, it’s just wrong. But nevertheless politically it’s the view prevailing and the Americans have managed to have a better public relations strategy." Klein is frustrated that Europe has not adequately explained its position and has allowed the U.S. interpretation to go largely uncontested.

He is also annoyed that while the United States pressures Europe to cede its prerogatives, it shows no appetite for shedding its own. The United States has an effective veto over key IMF decisions by virtue of a voting share greater than 15 percent (key Fund decisions must be taken by 85 percent of voting shares).

It’s anachronistic at this point. For one country, no matter how big it is to have the right to dominate decisions in that unique way is not legitimate anymore. If you talk about legitimacy, that’s the major flaw in the organization.

He also sees no sign that the United States is ready to relinquish its traditional prerogative to apppoint the president of the World Bank.

We have two sister organizations, the Bank and the IMF. The Europeans are ready to choose as [IMF] managing director whoever has the best merits — but only on the condition that the United States is ready to accept the same for the World Bank. As long as we don’t have that agreement, there is not really a reason for us to change.

Klein rejects the oft-heard argument that consolidation of European seats makes sense because European countries often coordinate their positions in any case.

Indeed we try to coordinate, this is what many other countries like to do as well. The BRICs coordinate as well, but nobody says that the BRICs should go down to one [IMF board] chair. So what we do is basically try to concentrate and bundle the voting power we have. Of course it’s easier for the Europeans because we have a certain framework to do that, but most of the issues we deal with here are not in the Community powers so it’s not an issue for the EU to decide, it’s still the member states deciding. And if you look at many of the issues, the positions of prominent European countries are different. On how the Fund should deal with low income countries, for example, the positions of France and Germany are different… The fact is that on some issues we try to coordinate our voting power, in others, we don’t… the Europeans are actually much more diversified in their views than the emerging markets.

UPDATE: Klein added this additional context in a subsequent email: "On issues of common European policy the position of the EU Board members is unified. For example, our assessment of the fiscal policy of one of the EU members here in Washington cannot differ from that of the EU organs. For the Euro Area,  we go even a step further. Since there is only one monetary policy of the Euro Area, the Euro Area executive directors actually speak with one voice only on issues like the Euro Area surveillance."

On the question of the Fund’s governance, Klein is skeptical that the measures agreed to thus far resolve the fundamental issues. In particular, he argues that the reliance on the G-20 to break deadlocks within the organization is not helpful, and is creating resentment among states not included in the elite group. The International Monetary and Financial Committee (IMFC) — an underutilized body of IMF finance ministers — would be a more representative structure for making key institutional decisions.

We have no decision so far on the real problem in the governance structure, which is either to change the IMFC or to replace the IMFC with another body which has a political decisionmaking power. We live with this pretty strange arrangement that if in the executive board we don’t come to an agreement it moves outside the IMF to the G-20, where only 20 countries out of 187 are there… I’d rather see a body which belongs to the organization being as political as the G-20, having similar decisionmaking powers to take these decisions rather than having it outside.

Klein also argued that the G-20 agreement on reform of the IMF board was designed not to remove Europeans from the board, but to shift two board seats from the advanced Western European economies to underrepresented eastern Europe.

The G-20 communique talks about the "advanced European countries" and I don’t see any intention to move the seats somewhere else out of Europe — the intention is to give the emerging Europe a stronger representation in the board. If you look into the regional distribution contary to common belief Europe as such is not overrepresented in the board by any of measures which you can take, whether you take GDP or you take the quotas which we have. But we have a clear deficiency for Eastern Europe.

Klein will convene with the other IMF executive directors tomorrow to debate and vote on organizational reforms.

Follow me on Twitter @multilateralist

David Bosco is an associate professor at Indiana University's School of Global and International Studies. He is the author of books on the U.N. Security Council and the International Criminal Court, and is at work on a new book about governance of the oceans. Twitter: @multilateralist

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