October 2, 2006
Eurozone misses its opportunity in Singapore
It is clear to most observers that the international financial institutions need reforms. As a result of changes in the world economy – most notably the rise of emerging markets such as India and China – the composition of votes and quotas of the International Monetary Fund (IMF) no longer reflects economic realities. At the annual meetings of the IMF and the World Bank an important step in the right direction was agreed on. Four heavily underrepresented countries, China, Turkey, Mexico and Korea, will see an increase in their quotas and negotiations started on a revision of the formula which determines who has a say in Washington.
By contrast, little progress was made regarding the question of a common external representation of the Euro-Area in international fora. Although the European Central Bank and the Commission – backed by the US-government – went out of their way to convince national governments, the big member states of the Euro-Area seem to have managed to get the issue from the agenda for the time being, as German finance minister Peer Steinbrück indicated in Singapore.
This is a sad development, since a single seat for the Euro-Area would significantly strengthen Europe’s political influence at the international level. There is no doubt that the Euro-Area is a major economic player. By GDP it is the second biggest economy in the world, the Euro is the second most important international reserve currency. Europe’s political influence however falls short of its economic weight. Although the Euro-Area holds 24 % of IMF quotes (compared with 17 % of the US) its influence on the agenda of the IMF is significantly smaller than that of the US or even the United Kingdom. There are few observers even in Euro-Area national governments who would doubt that proposition.
A common seat would clearly improve the situation. Currently, any country that wants to negotiate with the Euro-Area has to deal with various national finance ministers and central bank governors plus the representatives of the common currency, the ECB and the president of the Eurogroup of finance ministers. This makes efficient negotiations difficult and opens rooms for exploiting differences between the various European actors. It also increases the difficulties in dealing with and influencing IMF staff, which is quite an important instrument to set the agenda of the institution.
Matters are further complicated by the fact that in the IMFC, the most important decision-making body of the IMF, the representatives of the common currency – the ECB and the Eurogroup – only observer status. Germany and France on the other hand have a permanent seat, although they have no direct competencies in monetary and exchange-rate issues.Thus, at IMF-meetings, the US is known for its clear and concise messages whereas the officials and the public is confronted with a whole set of sometimes contradictory statements from various Euro-Area representatives with unclear competencies. Just try to figure out the meaning of a statement on exchange-rates if the interpretation of president of the German Bundesbank differs from the one of the president of the ECB.
It is often argued, that the Euro-Area is politically not yet ready for a common external representation. This position does not look convincing since national interests in the area are converging with the convergence of economic structures. It is no coincidence that the most vocal opponents of a consolidation of the Euro-Area are those member states, which would loose national influence and prestige. International trade policy shows that the European Union has significant international cloud if it pulls on one string.
Mark Schieritz is financial markets editor at the Financial Times Deutschland. He has covered the IMF meeting in Singapore for the FTD and has written this post on invitation for Eurozone Watch.