Europe's dirty fait accompli

PUBLISHED : Tuesday, 24 May, 2011, 12:00am
UPDATED : Tuesday, 24 May, 2011, 12:00am
 

Nominations only opened yesterday, but leading European nations are ganging up demanding that Christine Lagarde, France's finance minister, should succeed her compatriot Dominique Strauss-Kahn as managing director of the International Monetary Fund. It now requires the unlikely event of the emerging markets countries getting together with the US and Japan and agreeing on an alternative candidate for Lagarde to be stopped.

Whether she is a good choice or even, possibly, the best choice has been ignored as a parade of European leaders have marched in step to demand Lagarde should take over in a betrayal of the promises to have a free and fair and transparent election.

In the past, the leading economic powers chose the heads of the IMF and World Bank by a backroom stitch up, the so-called gentlemen's agreement at the founding of the two institutions, under which the Europeans chose the head of the IMF and Washington selected the president of the World Bank. This time, the Europeans are proudly doing much of their dirty dealing in full view.

The IMF's predilection for secrecy continues. Under the new, supposedly fairer rules of the contest, the nomination of candidates - who 'will have a distinguished record in economic policymaking at senior levels ...will have an outstanding professional background, will have demonstrated the managerial and diplomatic skills needed to lead a global institution' - continues until June 10.

Nominees' names will be revealed to the 24-member IMF executive board, which will draw up a shortlist of three, and only then will the shortlist be published. The executive board will meet the candidates and then go into its private huddle to decide, preferably by consensus rather than by formal election. In other words, backroom dealing still rules. European Union members and Switzerland have eight of the 24 seats, and have 34.28 per cent of the votes. With US support, the Europeans would have 53 per cent if it came to a formal vote.

Leading think tanks and bloggers, including former IMF chief economists Dr Simon Johnson and Dr Rajan Raghuram, have demanded the end of the European monopoly and suggested a raft of good candidates. Dr Nancy Birdsall at the Centre for Global Development had the bright idea of sending an e-mail survey to all members allowing them to list the strengths and weaknesses and rank suggested candidates and even write in their own candidates. The Economist compiled a list of candidates, in which Kemal Dervis, former finance minister of Turkey and head of the United Nations Development Programme, led the field with odds of 5-2, with Lagarde in 10th place at 14-1.

They were all too slow. Lagarde's steamroller was on its way. German chancellor Dr Angela Merkel called Lagarde 'distinguished' and 'very experienced'; Italy's Prime Minister Silvio Berlusconi said she was a 'great choice'; and after other Europeans had chipped in with their support, George Osborne, Britain's chancellor of the exchequer, over the weekend claimed that Lagarde was 'outstanding' and 'Britain will back her'.

Sadly, the international financial media are playing the European game like glove puppets.

Wolfgang Schaeuble, Germany's finance minister, defending the deal that the US chooses the World Bank president and the Europeans the IMF chief, more or less told non-Europeans to get lost when he claimed: 'After all, the US and Europe pay far the biggest share of the contributions. It's like in a publicly traded company: those who hold the majority of shares will also get to name the chairman.'

To accept Schaeuble's logic, why shouldn't the US control everything, as the biggest shareholder of both the IMF and World Bank? If the fund and bank were mere corporate entities, China would surely be prepared to use some of its US$3 trillion reserves to buy a bigger slice and make a takeover bid for both. But they are not supposed to be national playthings, but global institutions helping to promote a better world, dealing, respectively, with the finance and economic development issues of the global economy.

Whoever takes over from Strauss-Kahn has to deal with a host of immense issues, which make the European debt crisis seem parochial. They include: global imbalances, including the potential for trade and currency wars; high unemployment levels; regulation of complex financial instruments to prevent future shocks and instability; economic development issues, especially financial liberalisation, fiscal austerity and privatisation; and governance and reform of the IMF itself.

That is why it is disappointing that the supposedly more open IMF rules do not allow open manifestoes or questioning of candidates on how they would deal with the hot issues, and how they would handle the demands of the big shareholders.

Nobel laureate Robert Mundell told me that for all the attention paid to the European managing director, more damage had been done to the IMF and to those countries unfortunate enough to have to borrow because of interference from the US Treasury, either through the US first deputy managing director or directly, in demanding stiff conditionality.

The shareholders get their chance to make their views known at government and board meetings of the IMF. The managing director and her or his team should be free to formulate their policies professionally and without day-to-day government interference.

The one thing in favour of a European head of the fund is that there is no European view on any of the burning issues.

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The largest members of the fund, under a proposed reform for 2013, would be, in order: the US, Japan, China, Germany, France, UK, Italy, Brazil, Russia and India

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Europe's dirty fait accompli

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