With nearly 36 % of the overall voting share, EU nations have the tools to play an important role within the International Monetary Fund. Yet, as has been highlighted by the practice, EU Member States are divided, spread over several constituencies formed along national basis. Although Nicolas Sarkozy, before becoming president, talked about a single EU representation at the international institution, today, France represents one of the major obstacles to this goal.
Since the birth of the European Coal and Steal Community (ECSC) in the fifties, the main rational behind the EU integration process has been the pursuit of economic cooperation between its members. Today, the EU is the first largest and strongest economy in the world. Internal cooperation on foreign economic policies between member states has allowed the emergence of a strong economic power, with an indubitable economic weight on the international arena. As a consequence, in trade and competition policies, the European Commission has gained exclusive competencies, and accordingly, has been granted the power to negotiate on behalf of the EU Member States in the main trade international forum: the World Trade Organisation.
The EU has also promoted integration in the field of financial and macroeconomic policies, notably through the creation of the European Monetary Union and the euro. Yet, increased internal cooperation in these fields has not been accompanied, as it occurred in trade and competition areas, to the gradual replacement of national representations in the main IFIs, the Bretton Woods’ institutions – the International Monetary Fund (IMF). Yet, undoubtedly, an EU seat at the IMF table could have many assets for EU Member States.
Today, the EU is the largest and strongest economy in the world. It accounts for 20 % of world GDP and for 1/5th of international exports and imports. It owns the largest banking sector, insurance industry and payment system. The Union provides by itself 10% of all international development aid, without counting the EU Member States’ participation of around 45%[1]. In addition, the major success of integration – the euro – can be dubbed today as the second world reserve currency after the US dollars: It is used to issue more than one third of international short-term bonds, catching up with the dollar that is used for 40% of those world transactions, and almost 30% of longer-term bonds [2]. The EU has in addition created institutions to deal with financial and macroeconomic policies at the EU level: notably the European Central Bank, the Economic and financial committee (Ecofin) within the Council of ministers.
With such an economic and financial weight on the international arena, it should be assumed that EU Member States would be able to have an important leverage in negotiations taking place within the IMF. Yet, the practice has shown that EU Member States, rather than making the most of their common potential strength in International Financial Institutions (IFIs) and following common EU interests, act mainly along national basis. This is particularly relevant in the case of France, the UK and Germany, in the IMF but also in informal financial forums such as in the G7 and G20.
Indeed, within the IMF, EU Member States’ voting power is spread over ten different constituencies out of twenty-four. In addition, three of those twenty-four constituencies are hold by a single EU state – respectively by France, Germany and the United-Kingdom. The seven other groups gather both EU and non-EU members. Spain, Poland and Ireland are particularly isolated since they are the only EU Member states within their respective constituencies (Spain gathered with South-American states, and Poland with the former Eastern Bloc). At the highest decision-making level – the Executive Board – the EU voice is spread over eight different Executive Directors (France, Germany, the United Kingdom, Italy, Sweden, the Netherlands, Belgium and Spain).
The main reason accounting for the poor EU representation in those forums is that many member states see their own representation in IFIs as very important for their own prestige. Hence, Member States are not willing to loose their international seat easily. As Jean Claude Junker, the president of the Eurogroup, explains: “It is absurd for those 15 countries not to agree to have a single representation at the IMF. It makes us look absolutely ridiculous. We are regarded as buffoons on the international scene.”[3].
France is regarded as one of the countries representing the greatest obstacle to a EU single seat in the IMF. This can be explained by French high profile within the IMF, but also within other financial forums such as the G20, of which it holds the current presidency, and the G8. A single EU representation would imply the gradual replacement of France by the EU also in those forums, and therefore a great loss in international leverage for the country. Hence, Nicolas Sarkozy is not ready to reopen the chapter.
Yet, taken together, a single seat for the EU would represent many advantages: indeed, with 187 members in both the IMF, it is difficult for single EU states to influence decision-making within those institutions.
Today, the 2008 financial crisis makes even more obvious the necessity to enhance financial and monetary monitoring both at the International and European level. This can be illustrated by the harsh discussions that have been going on the drafting of a future EU competitiveness plan, involving corporate tax harmonization, adjustment of national pension systems, crisis management regime for banks, and a debt alert mechanism. Hence, it also makes more and more necessary to reopen the debate around a common, and more effective representation of EU member states within the IMF in order for the Union to gain a primary weight in the international financial institutions. This seems even more necessary in the light of the recent creation of rescue packages (involving both the IMF and the EU) mainly directed to European states (Greece, Ireland and now Portugal).
EU single voice within the IFIs would represent many advantages for its Member States since, taken individually, each of them are relatively small players in the international arena. In the future, this state of affairs could be worsened by the emergence of new economic powers (notably to the BRICS – Brazil, Russia, India, and China). In this light, enhancing the external representation of the EU would have for major advantage to allow European countries to keep a strong weight on the international economy.
Angela Shoeman
Membre des Cabris de l’Europe
[1] Neill Nugent, The Government and politics of the European Union, Palgrave MacMillan
[2] Robert B. Vehrkamp, “One voice for the Euro”, Spotlight Europe, August 2008, p.2
