Can Europe Really Cram 17 Leaders in One Chair?
WASHINGTON—The European Commission’s economic proposals to be unveiled on Wednesday will include a call for the Eurozone nations to pool their representation at the board of the International Monetary Fund (IMF) into a single seat. Designed to boost the currency bloc’s clout at a time when emerging markets are seeking greater powers in the world body, the proposal is bound to meet resistance — not in Beijing or Brasilia, but right next door to Brussels, in Berlin and Paris. The Commission’s calls for a single European seat go back a good decade, and reflect its interest in concentrating power in Brussels. Other prominent sponsors of the idea have included the former head of the European Central Bank Jean-Claude Trichet, EU president Herman Van Rompuy, and the Fund’s former managing director Dominique Strauss-Kahn.
Today, the Commission’s calls are motivated by a sense of a global assault on European powers in the world body. Reserve-rich emerging markets such as China and India have expressed a willingness to rescue the ailing eurozone from its prolonged financial crisis, but in return would likely want expanded voting share at the IMF, where European nations (EU plus Norway and Switzerland) collectively still hold a hefty 34 percent of the total vote — and the subset of eurozone nations hold 20 percent. Europeans also hold a third of the 24 board seats; eurozone nations Germany and France, as well as Britain, have their own, nonrotating chairs, along with China, Russia, Saudi Arabia, the United States, and Japan, while Belgium, the Netherlands, Italy, and non-eurozone EU member Denmark as well as Switzerland represent groups of countries. Seen as outsized for a continent in relative decline, Europe’s powers are a long-standing source of resentment for emerging nations. In the wake of the global financial crisis, emerging markets stepped up calls to bring their voting share to par with the advanced countries, and reissued demands for a “merit-based” selection of the Fund’s director, which by tradition has been a European. After much agonizing, the Europeans did last year concede two board seats and agree to a shift of 6 percent of the Fund’s voting power to emerging nations. Yet to take effect, the reforms would increase the share of China to 6 percent, raising it to the third-most powerful member after the United States and Japan, and just above Germany. India would have 2.6 percent. But the reforms still leave emerging nations short of majority, presaging future power battles. And the United States continues to hold nearly 17 percent of the votes, enough to give Washington a veto over the rare but important decisions that require an 85 percent majority. Europeans get little sympathy across the Atlantic.
The United States — which is fully entitled to its quota share under the current formula — too has long pressed Europe to concede both votes and board chairs to the underrepresented emerging nations. U.S. policy is driven by concerns that emerging markets will become increasingly difficult to work with on international economic policy matters. Washington also worries that instead of growing into responsible stakeholders in global governance, emerging markets will drift away from the Fund and step up self-insurance by accumulating reserves and building substitute regional financial facilities that would diminish the Fund’s influence over its members’ economic policies. If pooling their votes into a single board seat, the eurozone nations would gain a veto and become a swing vote in the Fund. Armed with such leverage, the bloc’s Western European members, the likeliest losers in further quota reshufflings, could be less reluctant to see some cuts in their voting shares in favor of emerging nations — which, in turn, would attenuate the perpetual tension between Europeans and emerging economies in the Fund. The prospect of a single seat is not far-fetched given Europe’s increasingly integrated foreign policy and financial regulations, and the eurozone members are inherently unified on exchange rate matters. But there are headwinds. Europeans are loath to let go of their national pet causes: Germany worries about moral hazard and inflationary effects of IMF loans, France tends to focus on reforms to the global monetary system, and the Netherlands and Nordics stress concessionary finance to the poorest countries. France and Germany are reluctant to give up their own seats on the board, let alone having to negotiate each vote with each other or other Europeans. They also resist losing their national sway vis-à-vis China or Russia. Intra-European politics too are at play: no European leader wants to pressure his or her counterparts into relinquishing powers, as that could jeopardize subsequent collaboration in European affairs. It is also unclear how the EU members that do not belong in the eurozone would be treated if the eurozone votes were pooled.
The Commission is playing its hand well: if there is good timing for the single seat idea, it is now when Europeans are at their most vulnerable. But Europeans are likely to continue their self-denied claim for power at the Fund. That would not necessarily be bad news: a Fund with two vetoes would unlikely be any more effective — nor would it serve U.S. interests. But it will keep the Fund’s governance evolving as previously, through agonized, incremental reforms.
Kati Suominen is Resident Fellow at the German Marshall Fund of the United States in Washington. Her latest book is Peerless and Periled: The Paradox of America’s Leadership of the World Economic Order (Stanford University Press, forthcoming).
The views expressed in GMF publications and commentary are the views of the author alone.