DSK falls...Europe risks too

, by Alessio Pisanò

DSK falls...Europe risks too
Dominique Strauss-Kahn Credit © European Union, 2011

Mr Strauss-Kahn’s resignation is not at all an exclusive affair of the IMF. The sex-assault charges which obliged him to step down as IMF Director may have serious consequences in Europe too. According too an informal agreement, the US is used to take the lead of the World Bank and the UE the IMF’s. But after the fallout of DSK the European leadership seems to have come to an end.

Developing-market countries, such as China, Brazil and Russia, are advocating for the IMF leading managing post to be assigned only on merit and competences without consider nationality. Moreover, they ask for a new managing Director coming from a developing economy in the wake of the new global economic scenario.

According to odds, China’s Zhu Min, a special adviser to Strauss-Kahn at the IMF before his resignation, would be in the front line for the post. China indeed argues to deserve to be at the helm of the IMF giving the way its economy has sharply grown over the past years. South Africa has also called for a more democratic proceeding to assign the chairmanship for the interest of all countries, not just Europe.

These demands are all but unfair as the IMF’s aim is supposed to take part equally and without any discrimination in ruling the global economy in the global interest. This is why it appears Europe to be in a pickle. In the aftermath of DSK fallout it is any more evident why the EU should keep its grip on the Fund. This could seriously affect European Member states as the IMF under the DSK leadership has played a key role in carry financial help to MS in crisis, notably Greece, Ireland and Portugal. On the top of this, Greece seems to need more help right now in order to avoid again the bankruptcy. Talks on a second bailout have already started, with EU officials striving to find an agreement on expenditure cuts and privatisations with national authorities and union traders. The IMF has helped by far to promptly intervene in Greece with a third of the first 78 billion Euros aid package granted last year.

If Europe loses the Fund leadership its Member will not be any longer at the centre of the Fund attentions. Regardless of the likely effects of the economic crisis expected to more yet affected European countries over 2012. For all these reasons European leaders are trying to find swiftly a suitable candidate for the post. The current French Finance Minister Christine Lagarde, 55-year old, is the favourite for the job as she has already been endorsed even by German Chancellor Angela Merkel along with other Europeans leaders. If Lagarde was given the IMF presidency, Europe would manage to keep control over the Fund itself.

Fair play would suggest Europe should keep its egoism away and allow a more democratic and transparent recruitment process. But pragmatically, the economic situation in the EU looks gloomier than ever, and the EU cannot afford to be overcomed by developing countries. If it wants to turn more fair this is not the right change. “Realpolitik” suggests the EU should do all the possible to keep the IMF leadership. If it doesn’t with hindsight it might regret it.

World Bank Director Robert Zoellick stated he prefers not to intervene in such an appointment. The G8 meeting is expected to decide over the possible candidacies to undergo at the IMF board. As by now there is scope for a strong consensus on Mrs Lagarde. If nominated, she should undergo a vote under the new IMF voting system which provides emerging countries with more voting power. As a matter of fact the EU could lead its candidate to victory only with the endorsement of Australia and the US. But prior to start counting votes the EU needs not only to find a suitable candidate but also to convince others countries to drop their pretensions. Even getting more votes fits into the legislation to win the post, usually the IMF board tries to appoint the Director upon a general agreement. But this time it is going to be more difficult for Europeans.

Unfortunately at stake there is none other than the Euro stability itself as the crisis is picking up steam.


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