links about us archives search home
SustainabiliTankSustainabilitank menu graphic
SustainabiliTank

 
 
Follow us on Twitter

 

Posted on Sustainabilitank.info on May 31st, 2011
by Pincas Jawetz (pj@sustainabilitank.info)

Roberto Foa has his BA in Philosophy, Politics and Economy from Oxford, and his and his MPhil from Jesus College, Cambridge.  In 2004 he was selected as a Peter Martin Fellow at Financial Times. He wrote –
“Before arriving at the Financial Times I was a consultant with the Future Foundation, where I had worked with BP, Defra and the Social Exclusion Unit. Prior to that I worked with the China-Britain Business Council in Shanghai and edited a webzine in Paris.”

Since 2006 he has been working in Washington DC towards creating the Social Development Indicators Project, which is a study being conducted on the relevance of social institutions and their effectiveness.
In 2007 he served as the coordinator for the World Values Survey in Rwanda.
He has Published in the Financial Times and consulted for various government projects.
He writes about economic integration, trade, and Europe’s ties to the world.
He has authored many papers and contributed to many chapters and books covering topics of social capital, democracy, and economic development.

Roberto Foa is now a doctoral researcher at Harvard University, Department of Government, Center for European Studies, and further information given out there:

Contact Information:
E-Mail (work): foa@fas.harvard.edu
Website: “Merchant of Venice” blog on EU Observer

Biographical Statement: Foa came to Harvard from the World Bank in Washington DC, where he was founder of the Washington European Society  www.eu-society.org). He is currently author of the “Merchant of Venice” blog on EU Observer, a consultant to the Club de Madrid, and has published a wide range of academic and journalistic articles covering such topics as democratization, economic policy, and institutional reform in the European Union. He is involved in research projects on the legacies of European colonialism, democratic consolidation in post-communist Europe, and in the European and World Values Surveys.

The following was posted as blogs.euobserver.com/foa/2011/05/… on May 31, 2011.

Why a European at the IMF?

After initial excitement that the resignation of Dominique Strauss-Kahn might lead to an emerging market candidate to follow him as head of the IMF, Europe has placed its seal firmly upon a successor – Strauss-Kahn’s own distant replacement as French Minister of Finance, Christine Lagarde.

At first glance, the insistence on a European candidate may seem odd. After all, even if the shareholders of a major company, such as Louis Vuitton, all come from a particular area – say, the western suburbs of Paris – they would be crazy to insist on having a CEO from the same neighbourhood. Their interest lies in finding the most competent person for the job. They are likely to search far and wide to find that person.

A similar logic may apply to the IMF, where European countries already have the lion’s share of the votes. Whoever becomes managing director will be responsible to Europe’s directors on the Board, so why insist on having a European to serve them?

The real reason, of course, is political. Europe needs a European to run the IMF, because in the absence of easy credit from the International Monetary Fund, the euro area is politically incapable of arranging and taking responsibility for its own eurozone rescue package. Moreover, even if it were thus capable, many believe that it is not in the best interests of the eurozone to do so.

Let us unpack this a little further. The need for a European to shepherd through easy credit is simple enough: most of the IMF’s lending is now in the European neighbourhood, including also non-eurozone countries such as Hungary, Ukraine or Iceland. The IMF package for Greece, at €30bn, was already the largest in its history, and the package for Portugal, approved last week, added another €26bn. A similar package for Spain could add over €100bn. Italy could be twice as large still. These are vast amounts, and will be hugely controversial if and when they arise. A non-EU director might not be inclined to jeopardise such sums.

Yet why cannot the eurozone arrange its own bailout mechanism? After all, rather than rely on the IMF for financing, Europe could very well establish its own “European” monetary fund, funded by Germany, France, and the Netherlands. Indeed, this is in part what the EFSF and the future ESM are intended to accomplish. However, as I have discussed long ago, the reality of a “European” Monetary Fund would spell death for the project of European integration. It would mean core European nations taking direct responsibility for implementing austerity policies in the eurozone periphery, and taking the resultant political flak. EU nations simply do not have the ‘political capital’ to dictate harsh spending cuts in neighbouring countries, unlike the IMF, which does so as a matter of routine. By shifting surveillance of austerity packages during their most difficult period to the Fund, the core Eurozone countries are able to continue dictating the agenda, but via the front of an international organisation with greater credibility, manouverability, and anonymity.

But what about simply allowing Greece and Ireland to default? After all, under the present Eurogroup and IMF packages, Greece and Ireland can neither pay off their debts, nor default on them, and are thus maintained in permanent debt servitude. Is this not a terrible policy failure?

The answer is no, insofar as these packages were never designed to save Greece and Ireland in the first place. Rather, their purpose is to save the eurozone banking system from collapse. The key beneficiaries of this long, drawn-out process are Dexia, BNP Paribas, and Commerzbank, and behind them, the French and German governments who currently insure their losses. Everyone knows that eventually, Greece and Ireland will have to default, but if they do so in two years time rather than today, then this gives eurozone banks enough time to transfer their assets to the European Central Bank, while shoring up their capital base ahead of the impending haircut. Leaving aside the problem of ECB recapitalisation, this means the contagion effect will be minimised: at the very least, it will not least to the wholesale meltdown that would have occurred if a default were effected today, say, or last summer.

Europe therefore needs a European to run the IMF: but not for reasons of competency, or familiarity. Rather, it is because the eurozone is incapable of fixing its own problems, and requires a candidate pliant and willing enough to take the controversial decisions needed for the currency bloc’s survival. Even, one might add, if such decisions may be perilous for the IMF itself.

——————–

What above translates to in our mind is that better forget the UN – IMF linkage. The evolving economies that really count – China, Brazil etc. better leave the IMF to the Europeans who anyhow use it for their own purpose mostly – this so the fiction of an EU and an EURO can be continued rather then face a splintered multi currency situation in Europe that will cause further havoc in World trade, and pass early the responsibility for managing such trade to China.

Be Sociable, Share!

Leave a comment for this article

###