“In the IMF we are ridiculous”, Jean-Claude Juncker

, by Jean-Guy Giraud

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“In the IMF we are ridiculous”, Jean-Claude Juncker

Since the editing of this brief, the negotiations began within G20 and of the IMF for a modification of the distribution of the quotas. Although the Americans proposed to Europeans a regrouping of their quotas and their seats, the Ministers of Finance of France/United Kingdom/Germany/Italy estimated that it was “premature”. The institutions of the European Union celebrate these days the 10th birthday of the decision of June 2, 1998 , the creation a European common currency - pursuant to the Treaty of Maastricht of 1992.The Single currency which was concretized in January 2002 by putting into circulation of the notes and coins in Euro and Eurocents.

This birthday was the occasion of a first assessment of the operation of the Euro Zone and in particular - because of international financial crisis of 2008 - of its role on the world scene. One of the subjects tackled - so in the Commission Report (“Monetary Economic Union 10: successes and challenges after 10 years of Monetary Economic Union”) and in the political debates (in particular in the European Parliament) and academic – were the one of the representation of the Eurogroupe (EUROGROUPE) in the international financial authorities (the IMF, G7, the World Bank). The Quasi unanimity of the speakers deplored the actual position of dispersion of the votes and the weakness of the influence exerted by the 15 Member States of the Eurogroupe and the 27 Member States of the European Union in these authorities:

  • according to the Report of the Commission: “the external representation of Europe in international financial forums remain fragmented, reducing the real influence of the Euro Zone”,
  • according to several reports of the European Parliament, “it is essential that the European Union dispose of unique representation (…) within the international financial institutions and (the European Parliament) deplores that there are no proposals in this direction” (Resolution of the 24/4/08 on the annual political strategy 2009),
  • according to Mrs. Pervenche Beres, President of the Commission of economic and monetary affairs of the European Parliament, “it is time that the Euro be expressed in one voice in the monetary system and in the international financial institutions. Is it necessary to have a common corpus of thought before willing to occupy the seat? (…) Dynamics will come on the way” (Brussels 04/05/08).

To date, the Member States of the European Union sit in dispersed order in the IMF where they individually exert only a much lower influence than their global economic weight.

These reports meet the political positions of high ranking officials like academic experts:

  • according to Mr. Jean-Claude Juncker, President of Eurogroupe: “in the IMF we are ridiculous. A single chair would be needed for the Euro area - but the European directors (representing the Member States individually) in the IMF hate this idea” (March 2008, to see Brève n° 166);
  • according to Mr. J. Pisani Ferry, Director of the institute Bruegel (Brussels): “the countries of the Euro Zone should as soon as possible unify their representation (in the IMF) and propose that their votes are proportional according to their economic weight” (05/5/06);
  • according to W. Munchau (FT 12/05/08) “Eurozone should have a unique representation in the international organizations such as the IMF (…) But there is much resistance in the European capitals (…) The representative of a big European country admitted openly that he would be opposed to such an idea with the reason that these international organizations provide comfortable employment to its services”.

… the euro area is an economic giant and a political dwarf

To date, the Member States of the European Union sit in dispersed order in the IMF where they individually exert only a much lower influence than their global economic weight. Germany , France and the United Kingdom dispose each of approximately 5% of the votes whereas the United States controls nearly 17%, Japan 6% - and the “right to veto” requires a minimum of 15% of the votes. In addition, the European participation is burst among various regional groups (Spain sits in the Latin-American group, Ireland with the countries of the Caribbean, Poland with the countries of the old USSR…). Gathering, the votes of the European Union would come nearly to 32% - and the Eurogroupe alone to 23%.

The Treaty of Lisbon devotes officially the existence of Eurogroupe and a greater decisional autonomy to it.

Moreover, the coordination of the Member States of the European Union - and even of the Eurogroupe - leaves something to be desired, for lack of common instructions coming from the capitals (Pierre Duquesne, Administrateur for France in the IMF and the World Bank, European Parliament 01/03/07). If the European Central Bank has a permanent “observer” and appointed at the IMF, it is the case neither for the European Union, nor for Eurogroupe. This situation is all the more detrimental with the European interests that the IMF should - in particular after the reforms under consideration in the context of the world financial crisis of 2008 - see to increase its role and its influence in the supervision and the regulation of the international monetary system.

At last, the unification of the representation and the European positions within the IMF would make possible compensation for the relative reduction - inevitable in the short run – the quotas of the Western countries for the benefit of the emerging countries (China, India, Africa, Latin America).

The treaty of Lisbon opens the way

It is known that the express disposals of the treaties (Art.21 KEEP SILENT/Art.138 § 1) the Treaties that the jurisprudence of the CJE leave no doubt about the competence of the Union in economic and financial international relations. It is also known that the LT gives, for the first time to the European Union (and not only to the EEC) the “legal personality” as well on the Community and international level. More precisely, the Treaty of Lisbon devotes officially the existence of Eurogroupe and a greater decisional autonomy to it.

As regards the international relations, the Treaty of Lisbon allows Eurogroupe:

  • to establish “joint positions within the institutions and of the international financial conferences” (Art 138 §1 FTUE),
  • to adopt “on Commission proposal the appropriate measures to ensure a unified representation within the institutions and International Conferences (Art.138 §2 TFUE)”.

The question of the unification of the European representation within the IMF is not an economic or monetary subject but an essential political question.

This last provision is fundamental because it will allow the Commission, when the Treaty of Lisbon comes into force, to pose officially and directly the question of the unique representation of the Eurogroupe in the IMF - thus obliging the Member States of the EUROGROUPE to be determined, without the other Member States being able to oppose. In addition, the decision of the EUROGROUPE could take in the majority of its members.

A single seat and/or joint positions for Eurogroupe and/or the European Union?

In theory, the European Union or Eurogroupe could be limited to define and defend the joint positions of its Member States without taking the step (complex on the policy and legal plans) of the creation of a single seat within the IMF. The experience shows however the relative weakness of this type of coordination/ informal and voluntary co-operation. On the contrary, the institutional way of the single representation - clearly traced by the Treaty of Lisbon - would ensure by definition the uniqueness and the effectiveness of the joint positions of the European group, as the example of WTO shows (where sits at the same time the European Union and its Member States but are expressed only with one voice).

The alternative: Eurogroupe 15 or European Union of the 27 could be exceeded for the benefit of Eurogroupe insofar as this group has the role to gradually gather the whole of the Member States of the European Union. Indeed, the original system - confirmed by the Treaty of Lisbon - provides formally that the non-participation in the Eurogroupe of certain Member States gives a transitory character - any Member State having to adhere to the Euro as soon as it accomplishes the technical criterias fixed by the Treaty. The non-member states are the subject of transitory a “exemption” (Art.139 TFUE) justified, in theory, by their only economic and financial situation.

It is known that, on this point, the exemptions from which three Member States profit (the United Kingdom, Denmark and Sweden) are not in conformity with this principle, their non-participation in the Euro Zone being justified by primarily political reasons.

An initiative of the French Presidency?

On the occasion of the debates which accompanied the 10th birthday of the Economic and Monetary Union (see above), the President of the Eurogroupe, Mr. Jean-Claude Juncker, recalled that the French President had decided, at the time of the electoral campaign, in favour of the single representation of the Eurogroupe in the IMF and informally invited him to seize the dossier at the time of the next French presidency (to be noted however that the Treaty of Lisbon envisages in this field an initiative of the Commission). Many observers consider indeed that two factors at least militate for a formal and urgent debate on this question:

  • the fast emergence of the Euro like second currency of exchange and international reserve,
  • the imminence of international negotiations aiming at resequencing of the world system to draw the lessons from the current financial crisis on the one hand - and the emergence of new economic and monetary powers and monetarists on the other hand.

These same observers are conscious of the political and legal difficulties which will raise the unified representation of the European Union taking into consideration the internal balance of power and the status of the organizations or International Conferences concerned. But they estimate in general that these problems could be surmounted in the long term since the European Union will show its determination to adapt the system in force to take into account the new realities.

A political interlocutor in the United States and in China

As Mr. President Valery Giscard d’Estaing declared: “To lead the United States or China to modify their financial or monetary behavior (…) they need a political interlocutor of equivalent level. The Euro area - by its size and its richness - largely has the necessary economic dimension but no political responsability is in its situation. We wish that the adoption of the Treaty of Lisbon gives a voice to Europe and that this voice defends,not the Euro which does not needit, but the whole of the European interests” (9th Economic forum and monetarist/Brussels/15/05/08).

The question of political nature

The question of the unification of the European representation within the IMF - as within G7, so as in the G20, even of the World Bank and OECD - “is not an economic or monetary subject but an essential political question” estimate certain persons in charge (cf P. Duquesne above mentioned). It is clear indeed that some of the Member States of the European Union who dispose today, because of their relative size - of an important place within these international authorities hesitate to give it up - at least partially - for the benefit of a unified representation.

It seems however that this evolution is impossible to circumvent if they want to safeguard the interests of the whole group - and finally of each - Member State of the European Union. As such the way traced in any case by the provisions of the Treaty of Lisbon so as by the sense of the economic integration and policy which underlies all European company.

Finally it seems to be an interest for the good performance and for the international financial system that the astonishing and dangerous paradox of the nonofficial representation would be solved on the world plan of the first economic and financial power of the planet which from now on constitutes the European Union.

Image:
- IMF, source: google images

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