Monday, 23 May 2011

Germany still punching below its weight

Europe hasn't wasted any time in getting its ducks in a row for the upcoming battle over naming a new IMF chief, with capitals across the continent voicing support over the weekend for French finance minister Christine Lagarde. That Europe so quickly agreed the monetary fund leadership should yet again go to someone from France reflects the political realities of Europe today. Britain can't be bothered, and Germany is too timid to take a leadership role.

Lagarde, who would be the first woman running the fund, received the backing of the British, German and Italian finance ministers over the weekend - with Luxembourg and Austria following suit. Chancellor Angela Merkel has yet to make her feelings known, but her finance minister would likely not have made the comments of support without her blessing.

The fund has been run since 2007 by Frenchman Dominique Strauss-Kahn, who has made it a mission of the fund to save Europe's faltering common currency. But following Strauss-Kahn's arrest on rape charges in the United States last week, countries like China and Brazil have signalled they intend to pressure the fund to take on a new leader from the developing world.

This would be a drastic departure from the balance that has existed in the two Bretton Woods institutions over the past 50 years – with the IMF leadership always going to a European and the World Bank leadership always going to an American. Europe is in a panic over the idea that they would lose the IMF leadership just at the time the fund is deeply involved in the ongoing euro bailouts. So it's no surprise that the European capitals decided to quickly endorse a replacement candidate. Any intra-European bickering over the choice would likely have led to the developing countries quickly fielding a successful candidate as a compromise.

But even though there is a recognition of the need for a quick consensus, some in the German press were wondering aloud this weekend why this consensus had to go to France. The front cover of the German business daily Handelsblatt declared in bold letters, "The German candidate". Below it was a photo of the French finance minister. The tongue-in-cheek cover was accompanied by an article which bemoaned the fact that despite it being Europe's biggest economy by far and the engine of the Eurozone economy, Germany holds none of the top international jobs.

Even the European Central Bank, which is based in Frankfurt and staffed largely by Germans, is headed by a Frenchman – Jean-Claude Trichet. The hunt is on for a new ECB chief in October, but it is clear already it will not be a German. Instead it looks like the new leader is going to be Mario Draghi, the head of Italy's central bank. Merkel delayed expressing support for Draghi for weeks, having obvious concerns about handing the ECB over to the person who has run the economy of a country with serious debt and a tinderbox of economic problems. But over the past week Merkel relented, and set to work reassuring Germans that Draghi is the best choice despite his being Italian. She has reportedly been telling people that Draghi is the "most German of all the remaining candidates." Her alleged pitch prompts an obvious question - why should Germany have to settle for a foreign candidate who is the "most German"? Why can't they get an actual German in this position?

But the reality is, when it comes to the IMF position, Germany has few high-profile politicians it could have fielded. The UK has several, and former prime minister Gordon Brown was being suggested for a few days last week before David Cameron flatly ruled out his support for that idea. The UK isn't particularly interested in having a British person in the position, it appears. But for Germany, it was certainly logical and desirable that a German be in that position – particularly because Germany is contributing the largest amount to the EU bailout funds that are being co-managed by the IMF (the UK, which does not use the euro, is not participating in them). Only one German has ever served as managing director of the IMF, between 2000 and 2004. If Lagarde is successful in her bid, she would be the fifth French person to hold the position.

Some commentary today has said the situation is symptomatic of Germany's unwillingness to take a leadership position in Europe. Dominique Moisi of Project Syndicate wrote this weekend:
Today, it is not an excess of German ambition, but rather a lack of it, that is threatening Europe. Germany may remain “too big” for other Europeans, but the “new German problem” is that the country wants too little. Its dream is neither to dominate Europe, nor even to lead it by the exemplary quality of its policies. Germany’s not-so-secret ambition is to become a Magna Helvetia, a Big Switzerland – prosperous, stable, neutral, and ultimately irrelevant.
Such a lack of ambition from what has historically been the most federalist, pro-EU large European country would be bad news for the European Union and possibly even the common currency. And yet, as Moisi points out, German political decisions seem to be increasingly driven by populist concerns rather than a coherent vision for the future of Europe. Witness Angela Merkel's finger-wagging speech last week telling Southern Europeans to 'work more and play less'. Of course, such populism is on the rise throughout Europe. But it is particularly worrying when it seems to rear its head in Germany, a country which during the second half of the 20th century has generally been immune to its charms.

Europe has a big fight ahead of it if it wants to keep the IMF seat, but deciding on a consensus candidate so quickly is likely to help a great deal. And it doesn't hurt that Lagarde is well-liked in the Anglo-Saxon world and the darling of American and British media. As far as I know she is the only member of the French cabinet who is allowed to speak English while representing France internationally. Granting her this exception may prove to have been fruitful foresight on the part of Sarkozy's government.

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1 comment:

Fran said...

Putting Gordon Brown in charge of the IMF would be like making Muammar Gaddafi the High Commissioner for Human Rights.