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|Situation vacant: Europeans need not apply|
The Times - May 23rd 2011
In the bad old days of George W. Bush, whenever Europe was accused of being from Venus, in the sense of disliking war rather than being sexual predators, the riposte would come that Europeans exercise “soft power” rather than the hard, Martian sort. By our values, our democracies, our sensitivity to the way the world was changing, we influence others, persuading them rather than forcing them to do what we want. This always had a pass-the-sick-bag character, but this week we will see the most nauseous proof yet of European hypocrisy, when Britain, France and Germany insist that the successor to Dominique Strauss-Kahn as head of the International Monetary Fund must again be a European.
All those speeches, all those exhortations to our allies in America that it really must adapt its thinking, speeches replete with long pompous words such as multipolar, multilateral and inclusive, will be confirmed as having just been so much guff when Europe insists that it should keep the job that it has filled for all of the past 65 years. Moreover, what the emerging powers of Asia, Africa and Latin America should do in response is to turn against Europe the very argument the Europeans look likely to use.
What the Europeans will say is that, yes, of course we think that the 65-year-old tradition of sharing out these jobs between the Atlantic powers, with the World Bank run by an American and the IMF by a European, is outdated and should be abandoned—but not yet. Why? Because the sovereign-debt troubles of the euro zone are currently the IMF’s biggest pre-occupation, and so a European—notably Christine Lagarde, France’s finance minister—is just what the IMF happens to need to sort those troubles out.
Christine Lagarde is a smart proposal, since she is plainly able, speaks good English and would be the IMF’s first female boss. Yet, talented though she is, the idea that one of the leading financial policy-makers in the eurozone should now run what is supposed to be a global enforcer of tough-love is distinctly odd. It would be like asking Bob Diamond of Barclays to police the British banking system, or one of Sepp Blatter’s colleagues to clean up world football.
The eurozone is faced with a series of options all of which are bad. If it chooses to muddle through and just give some more short-term loans to Greece or Portugal to tide them over, it risks an investors’ revolt. If it chooses to restructure Greece’s debt, perhaps forcing lenders to take a 50% cut in the value of their bonds, it risks causing a run on European banks and a rush by other troubled sovereign debtors to get the same discount. If it chooses to force Greece out of the euro in return for the restructuring, to deter the others from following suit and avoid encouraging future profligacy, it risks a collapse of Greece’s banking system and more speculative betting on future expulsions.
The choice that is ultimately made, unless a miracle comes along, will be intensely political and painful. Taxpayers in northern Europe are going to be furious, tempting the politicians to seek the softest options that they can. The European contribution to that decision will come chiefly from Chancellor Angela Merkel of Germany and President Nicolas Sarkozy of France, with input from the European Central Bank.
So what the world, and especially investors and European citizens, needs at such a time is an independent, objective voice at the IMF, capable of putting strong external pressure on the process to make it likelier to be rigorous, had-headed and fair. That is not best achieved by installing another European politician in the post.
A reasonable question to ask is whether such an able, independent, strong voice does exist among possible candidates from outside Europe. If not, the European case will of course look stronger. We don’t know yet who will be put forward, and a particular complication could occur if China and India decide to oppose each other’s candidates, as they might. But it beggars belief to think that there is no one good outside the old world.
One non-European option not yet mentioned is a Japanese: Hirohiko Kuroda, a respected former finance-ministry official who heads the Asian Development Bank and has done a good job at that regional financing institution. Other promising candidates include Trevor Manuel, who was a tough finance minister of South Africa under Nelson Mandela, and Montek Singh Ahluwalia, a plain-speaking Sikh who as deputy head of India’s Planning Commission is in effect that country’s chief economist and who worked for the IMF earlier in his career. All three of these candidates could be expected to say boo to European geese, when necessary.
Let us hope that Barack and Michelle Obama are not disturbed too much by this issue of who should be the future head of the IMF during their state visit to Britain. It would be a rather dry subject for the Buckingham Palace dinner table. But he will quickly get a chance to offer his view when he goes on from London to Deauville, for the Group of Eight rich-country summit being hosted by President Sarkozy.
Cynics will say that President Obama will naturally accept Christine Lagarde because America wants to hold on to the leadership of the World Bank. Perhaps he will, but let us not forget the president’s own words during the past few days. Having established his credentials as commander-in-chief with the killing of Osama bin Laden, with his speech on the Middle East on Thursday he appeared to have appointed himself as America’s leader-writer-in-chief, so full was the speech with shoulds and oughts and calls to be on the right side of history.
In the case of the International Monetary Fund, it should be abundantly clear to him which side of history is the right one. The institution’s next head should be chosen on merit rather through buggin’s turn, and be seen clearly to have been chosen in that way; should be someone who understands the way in which the world has changed, and will keep changing in future; and should be a person technically and temperamentally capable of being robust in the face of whatever political and economic pressures might come their way.
That means, as President Obama should say in Deauville, that Messrs Kuroda, Manuel or Ahluwalia would be far more appropriate choices than Christine Lagarde. Given that the Deauville meeting will represent the old way of doing things, the G8 rather than the G20, the Indians, Chinese and Brazilians will not be able to bang the table in approval. But they should be making it clear now that yet another transatlantic stitch-up is just what they do not want.