The last time Europe picked an International Monetary Fund chief, many said it would be the last, with the role eventually being handed over to a representative of an emerging economy. With the IMF now presiding over bailouts to EU countries, it is almost certain that the job will again go to a European.
The future superpower presented its demands in a charming manner. Dressed in a smart outfit and impeccably coiffed, Jiang Yu, the spokeswoman for the Chinese Foreign Ministry, spelled out China's conditions to the West.
The election of the new executive director of the International Monetary Fund (IMF) should be subject to the principles of "fairness, transparency and performance," she said. Furthermore: "In principle, we believe that the emerging and developing countries should be represented in the top positions."
Western leaders listened eagerly to every word Yu said. Still, they asked: If the Chinese wanted to see someone from their own ranks promoted to the top job in Washington, why didn't they send a political heavyweight? Why didn't they use this opportunity to put forward their own candidate?
Government officials in Berlin, Paris and London have little doubt that the images and words from Beijing mean that the Chinese have chosen not to present their own candidate for the top IMF job. Beijing may be seeking more influence and input in this key international agency, but it's apparently not interested in fielding someone for the position.
This paves the way for the usual process of selecting candidates. Once again, it looks likely that a European could be selected to lead the IMF. That's the way it should be and ought to remain -- at least as far as the Europeans are concerned.
Euro Crisis Has Changed European Attitudes
Unlike the Chinese, Europe's top political leaders had no qualms about immediately making their own demands. German Chancellor Angela Merkel chimed in, as did Italian Prime Minister Silvio Berlusconi and Euro Group President Jean-Claude Juncker.
They weren't bothered by the fact that they were singing quite a different tune only four years ago, when they elected Dominique Strauss-Kahn to head the IMF. "Strauss-Kahn is expected to be the last European to run the IMF in the foreseeable future," Juncker said at the time. Fellow European politicians made similar statements, including then-German Finance Minister Peer Steinbrück of the center-left Social Democratic Party (SPD).
Earlier, the Europeans somewhat naively declared that it's time for emerging nations like China, India and Brazil to come to the fore. Now, however, EU leaders regret having relinquished this privilege.
Their change in attitude has to do with the euro crisis. The IMF used to primarily intervene in remote areas of the world, rushing to help when Argentina went bankrupt and when the Asian Tigers ran into problems.
More recently, though, the IMF has been active in the heart of Europe. It has been aiding the Greeks and monitoring whether they actually implement the required belt-tightening measures. The Washington-based organization also helped finance the bailout packages for Ireland and Portugal. It plays a key role in the crisis strategy of the euro zone countries. Not surprisingly, the Europeans want to continue to maintain close ties to the head of the IMF.
This has led to the following proviso: The new head of the organization has to be someone who is familiar with and understands the problems and concerns of the monetary union -- ideally someone who has first-hand experience in this area.
Will French Nationality Hinder Lagarde's Prospects?
French Finance Minister Christine Lagarde has emerged as the frontrunner. Late last week, top politicians in the euro zone made a flurry of phone calls to sound out possible candidates. Lagarde enjoys a great deal of support -- including from the German government.
Nevertheless, the Frenchwoman has opinions on key issues that diverge from Chancellor Angela Merkel's positions. She argued vehemently against refinancing Greece's debts, and she has no objections to a transfer union in which the rich euro countries constantly bail out the poor ones.
Lagarde's biggest disadvantage, though, is her French nationality. Since 1963, Frenchmen have determined the fortunes of the IMF for a total of 36 years. Her advantage is that she would be the first woman to head the organization.
Europe will have no difficulties pushing through its demands. The European Union holds 32 percent of the voting rights, and together with the United States, which has 16.7 percent, it has a comfortable blocking minority (see graphic in the upper left-hand column). They can scuttle any decision.
That notwithstanding, the selection process won't be as easy as it used to be. The Chinese, Brazilians and Indians have become more self-assured. They will demand something in return for electing a European.
On the other hand, the EU can rely on the Americans for support. For decades, there has been a gentlemen's agreement that the Europeans appoint the head of the IMF and, in return, the Americans fill the top job at the World Bank. They have both always ensured that their respective top candidates receive the majority of the votes.
The Americans were afraid that this traditional horse trading would now be jeopardized. In other words, if the Europeans waived their claims to the top IMF position, the time-honored status of the US might also come into question. Strauss-Kahn's early departure now gives the Americans another opportunity to restore the status quo ante.
Ownership structures and global economic conditions speak in favor of the dominance of the old Western economies in both institutions. The US and the EU continue to produce nearly half of global gross national product. Emerging markets are catching up, but they still have much less economic significance.
Emerging Countries' Positions Diverging
The Europeans are hoping that emerging and developing countries will not be able to agree on a common candidate quickly enough. In this highly diverse group, the process of searching for a candidate is not as well organized as it is among the Americans and Europeans. It also remains totally unclear whether the Chinese, for instance, will allow the prestigious job to go to an Indian, despite the fact that the subcontinent has a very respectable candidate, namely Montek Singh Ahluwalia, the deputy chairman of the Indian Planning Commission.
Another name that keeps popping up is Mexico's Central Bank Governor Agustín Carstens. The economist who graduated from the University of Chicago falls into the emerging nations' camp but is widely seen as being too close to the Americans. Kemal Dervi, the former Turkish economics and finance minister, also has an excellent reputation. His reforms laid the foundation for a sustained economic recovery in Turkey. Dervi is the perfect compromise candidate. He grew up in Western Europe and has a Dutch-German mother.
It is unlikely that the emerging countries will be able to agree on any of these candidates, not least because the Chinese are pursuing their own plans. The largest and most powerful emerging market would be satisfied with the position of deputy executive director, at least for now. The man who might receive this position is Zhu Min. Until now, he has served as a special advisor at the IMF.
Major Challenges for Next IMF Chief
No matter who ends up winning the race, major challenges await the new head of the IMF. Despite his bizarre departure, Dominique Strauss-Kahn has made considerable accomplishments in Washington. His will be a hard act to follow.
When he assumed the position, the Frenchman took over a bloated bureaucracy that seemed to be out of step with the times. His staff was plagued by self-doubt because the IMF was in danger of losing its standing in the international world of finance.
Strauss-Kahn revamped the organization, reduced the workforce and gave the remaining staff a new sense of self-confidence. With the outbreak of the financial crisis, the IMF finally had something to do again. Like a team of firefighters, Strauss-Kahn's staff fanned out across the globe to aid countries that were suddenly facing financial difficulties -- from Iceland to Indonesia, and more recently, in Greece and Ireland. These activities boosted the organization's importance. It is now perfectly normal for the head of the IMF to attend meetings of the G-20 countries, a group of the world's leading industrialized and emerging economies.
Nevertheless, Strauss-Kahn's successor won't be able to rest on his laurels and enjoy the institution's new status. He (or she) has to organize an orderly withdrawal for the IMF, once the crisis is over. At the same time, he must ensure that the conflicting demands of emerging and developed countries don't paralyze the organization.
Finally, the next IMF leader must ensure that his or her successor is a representative of an emerging economy.
Translated from the German by Paul Cohen
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