Showdown in Washington Emerging Nations Vie for Power at IMF
Part 2: A Fragile Alliance
The dispute over the replenishment of funds also offers the up-and-coming powers the chance to drive a wedge between the Americans and the Europeans, who have traditionally stuck together on most issues, including the selection of a new IMF managing director.
This time, however, the alliance seems fragile. The Americans are unwilling to provide additional funding for the global bailout fund, and they are also blocking the implementation of the reform resolutions. US President Barack Obama doesn't dare ask the US Congress to approve more funding for the IMF before the November presidential elections.
US Government Pulls Punches
"Europe has the capacity to solve its problems. The IMF cannot substitute for a robust euro area firewall," says US Treasury Secretary Timothy Geithner.
This attitude of denial hasn't changed. "The American government is essentially pulling its punches and hoping that there will not be any further disasters this year," say IMF insiders.
Obama is being careful not to expose himself to the accusation that he is wasting American taxpayer money. In addition, the sole remaining superpower often has a tendency to develop a distinct skepticism toward international organizations. Too much international cooperation is incompatible with the country's image of itself as a hegemonic power.
The Republicans in the United States are also using the debt crisis in the old world to support their contention that the European, supposedly socialist economic model has failed. "Europe doesn't work in Europe, and it doesn't work here" Obama's likely challenger Mitt Romney says repeatedly at campaign events, in an effort to strike a blow at Obama, who allegedly plans to introduce a European-style economic model in the United States.
However, there is one beneficiary of the US's restraint: China. Officials with the world's second-largest economy have noted with satisfaction how the Americans have taken themselves out of the game. Any loss of influence by the old hegemonic power suits them perfectly.
With the world's largest foreign currency reserves at their disposal, the Chinese have no trouble coming up with the funds for the IMF. And, unlike Obama, they have no need to take the wishes of a recalcitrant legislature into account.
Mixed Feelings in Berlin
The government in Berlin views the Americans' restraint with mixed feelings. "It is regrettable that the United States is not making its own contribution," say officials at the German Finance Ministry. Nevertheless, Finance Minister Schäuble's staff is unwilling to abandon all hope. "We are confident that the increase in resources will be approved at the spring meeting, and that the BRICS countries will go along with it."
The German government is unwilling to enter into a quid-pro-quo arrangement with the emerging economies, under which Europe would get more aid and the emerging economies would get a larger say at the IMF in return. "There is no direct relationship between the current increase in resources and further reforms at the IMF," say German officials. Besides, they add, the emerging economies will not be able to block the resolutions in the long term, because they lack the necessary majority to do so.
The Europeans are also betting on the self-interest of the BRICS countries. European countries are not the only ones that could benefit from the additional funds, because they will be available to all member states worldwide. This certainly seems necessary, given the conclusions of IMF studies showing that the euro crisis affects even the most remote parts of the world. In their projections, known at the IMF as "tail risk" scenarios, fund chief Lagarde's experts conclude that the collapse of a country like Spain or Italy could also have a serious impact on countries in Latin America and Asia. The Europeans reckon that the BRICS countries, determined to avoid such aftershocks in their own backyards, will ultimately support the increase in IMF resources.
Meanwhile, the Europeans have lowered their expectations in terms of the scope of IMF aid. They have abandoned the goal of mobilizing $1 trillion. If the increase in resources only amounts to $800 billion, say the negotiators, that too will be "a nice outcome."
Translated from the German by Christopher Sultan
- Part 1: Emerging Nations Vie for Power at IMF
- Part 2: A Fragile Alliance