Should the IMF move beyond Europe?
Arvind Subramanian and Nicolas Veron argue against the notion that the European debt crisis means the next IMF managing director must be European: Dominique Strauss-Kahn has played a key role during the Euro crises, especially last year, in persuading eurozone leaders to partner with the IMF in addressing the Greek crisis. But the next challenges ...
Arvind Subramanian and Nicolas Veron argue against the notion that the European debt crisis means the next IMF managing director must be European:
Dominique Strauss-Kahn has played a key role during the Euro crises, especially last year, in persuading eurozone leaders to partner with the IMF in addressing the Greek crisis. But the next challenges will be of a different nature. Last year, the IMF leadership’s sensitivity to European politics was key to ensuring acceptance in Europe of IMF-led conditionality for the countries receiving aid. Now, if and when Greece comes back for its second tranche of borrowing, the MD will have to play a different role: to convince Europe, in what promises to be a heated discussion, that Greece has a solvency problem and requires debt restructuring; or, if the IMF concludes that Greece merits international support and all other options are worse, to convince the rest of the world to extend further financial commitments. Either way, there is less need for a European and more for an objective outsider.
Their argument has some force. As I argued yesterday, it’s a bit cheeky to contend that being a large IMF borrower somehow entitles you to the managing director slot. But it’s also not clear to me why a non-European would be particularly effective in convincing European policymakers to allow a Greek restructuring. Wouldn’t that mesasge carry more weight coming from someone who’s part of and invested in Europe? The reality is that Europe at the moment is both the largest shareholder at the Fund and the largest borrower. I can’t see its leaders agreeing to relinquish its hold on the top spot at this moment.
What’s more, the European grip on the IMF spot is tied to the American presidency of the World Bank. Europe will be loathe to loosen its grip without an American committment to shed its own privileges at the institution across the street. And this may be a particularly awkward moment to ask Washington to do that: there are insistent rumors that a certain U.S. secretary of state may be eyeing the Bank presidency.
The recent American experience in pressuring Europe to give up several of its spots on the IMF executive board may also discourage Washington from backing an emerging-market candidate. In that fight, U.S. officials saw themselves taking on Europe essentially on behalf of the emerging economies. My sense is that the emerging economies weren’t as appreciate as Washington had expected.