The IMF Should Move To Europe

The headline news from the G20 summit in Pittsburgh is that progress has been made on “IMF reform,” meaning increased voting power for emerging markets relative to rich countries – remember that West Europeans are greatly overrepresented at the IMF for historical reasons.  But further change in a sensible direction is being blocked by the UK and France – because they have figured out that this logic implies they would lose their individual seats on the IMF’s executive board.

The way to break this impasse is (1) for the European Union to consolidate into a single seat or membership, and (2) for the Union to assert its right to be the headquarters of the IMF (under the Articles of Agreement: “The principal office of the Fund shall be located in the territory of the member having the largest quota…”).

The US will push back hard – arguing that only countries can be members of the IMF.  But what’s a country for these purposes?  The UK, for example, has elected assemblies in constituent parts of its union (and different soccer teams), but can still belong to the IMF: “Membership shall be open to other countries at such times and in accordance with such terms as may be prescribed by the Board of Governors. These terms, including the terms for subscriptions, shall be based on principles consistent with those applied to other countries that are already members.”

Ultimately, this kind of decision is more about high politics than international law.  The only part of the world where the IMF currently has the legitimacy to make a difference is in Eastern Europe, and most of the additional resources for helping that region should come from Western Europe – after all, Brussels had the not-so-good idea that “convergence” through EU accession meant that running massive current account deficits was somehow a good idea. 

Europe still insists on the right to nominate one of its own to be managing director of the IMF, which is an awful anachronism at this point.  The New IMF could be based in London with a French boss, or in Paris with a British boss.  The EU would have a powerful voice and the US would keep its veto.  The emerging markets, outside of Eastern Europe, would still be annoyed and with good reason – but they should really stop complaining and just set up their own fund (building on the Asian Chiang Mai initiative); China, India, Russia, Brazil, and Saudi Arabia have more than enough financial firepower to make this happen.

By Simon Johnson

22 thoughts on “The IMF Should Move To Europe

  1. There will be an EU in 10 years, and thereafter. Europe sometimes was unified for much longer than there has been European colonists in America. It got into pieces for mainly Franco-French reasons, but now the French learned their lesson.

    It’s no big deal whether the boss is British, or French or italian, etc: by now Europeans are used to “foreign” bosses.

    Actually other europeans are not viewed as “foreign” anymore, nor are they: EUROPEAN CITIZENSHIP is a fact. Catalogne, at this point is Catalogne, for example. Whether it’s part of Spain or not is increasingly irrelevant. It’s part of Europe, and a very high speed train line in the direction opposite Madrid is a must.

    And so it is, all over Europe: Europeanism is in, nationalism fading into complete irrelevance.

    Patrice Ayme

  2. And so it is, all over Europe: Europeanism is in, nationalism fading into complete irrelevance.

    So when there’s a skirmish between Lithuania and Russia over a trade dispute or a flareup in the Balkans, troops from Germany or Britain or France are going to be deployed to protect their European brothers and there will be no protests from the citizenry on their troops being deployed to some place they don’t care about?

    I’ll believe it when I see it.

  3. For the Balkans, it’s already history. The French were the first to use deadly force against rogue elements in Bosnia (so called self described Serbian nationalists). The UK followed. Clinton and company (USA) came later, decisively, but later. The important first step was radar counterstrikes by French heavies, suppressing the fire that was destroying Sarajevo.

    Now for the hypothetical with Lithuania; we have to give time to time.

    One has to distinguish the part of Europe that was the old Imperium Francorum, and the rest, a lot of it founded since (as Russia was).

    The Imperium Francorum and dependencies is close to half a billion people, it’s called the EU, and it’s a nation in (re) making.

    Now the French undestand, as Carlus Magnus (Charlemagne) did, that what is happening in Poland or Hungary is their business, and the rest of Europe agrees, 100%, so nobody is protesting, or even noticing, when Swedes lead Europe’s 498 million, as it is the case now. it’s business as usual. All French know that there are, in Europe, higher authorities than Mr. Sarkozy. Although those can also lean on Sarko, Brown, Merkel, even Berlusconi, or Juan Carlos…

    Better believe it, because it can be seen.


  4. The IMF also has Pakistan on the hoc.

    That is far more significant than Bulgaria. It encroaches on China’s only real non-East Asian sphere of influence.

    Again – lumping Saudi Arabia (a client state of the U.S. ), India, and China together as potential allies is laughable.

  5. London or Paris, but not Frankfurt?

    I can see why Frace or Britain might want to host the body, in exchange for their individual membership, but neither can expect to lead it forever, so you can’t compensate both that way.

    Imagine the press coverage here in the UK if, in the face of massive deficits, the government brought in the IMF, literally.

  6. Patrice A.

    So where does Jean Monet who is considered one of the founders of the European Union fit into your history.

  7. The UK is not part of the Euro, and its finance industry, concentrated in London, is already too big in Europe: London is a NOT a suitable place for the IMF. Paris, within Euroland, seems to be a much better choice.

  8. Nemo, you make some very observant and keen comments on finance and economics. As far as the above question, better leave the “what ifs” and geopolitical questions to others.

  9. Indeed, especially since Frankfurt already has the ECB… Moreover Paris is one the three largest cities in Europe (with irrelevant-for-this-purpose Moscow), and one of those few cities that can be viewed as world capitals…

  10. tippygolden:

    I know Monet is one of the “fathers of Europe”, but i can’t remember what he did at this point… It will come back to me sometimes…

    In my version of history, unusual viewpoints are often given great weight. For example even the pathetic Nazi apocalypse played a role in European unification: after they got their big kick, and occupied France, German fascists, to their dismay, found that if France did not exist, they had to re-invent her. Because they could not do without.

    And the Nazis found that the Brits were the master race, so they may as well join them too… And so on… It did not escape the hard core French haters in Germany that it is French speaking SS who defended Hitler to the bitter end. 400 hundred of them.

    Bizarrely, the rational conclusion of the insane Reich was that a free and cooperative Europa was a necessity for Germania. One of the last flight of a Swastika plane, on May 2, 1945, after Hitler’s death, carried the ex French Premier, Laval, from Austria to Spain…

    Such are the deepest currents of the systems of thought. Relative to this, men such as Monet, although estimable, are less significant.

    More unusual, but fecund and real history on my site:


  11. Wow, Simon, you’ve really gone too far this time–tsk, tsk. Suggesting that China should show some initiative and set up a fund with other Asian countries. China?? Investing in their own country and investing in their own region?? Don’t you think the Chinese government is much better mentally equipped at crying and sobbing they weren’t invited to the party??? tsk–tsk

  12. One of the reasons I love this site “baseline” is that generally James Kwak and Simon Johnson try not to get political. Of course when you talk about Economics and finance and many other topics, it would inevitably cross over to politics. This isn’t directly related to the G-20, and maybe getting legitimate and effectual bank regulations is enough challenge for this site……..BUT I hope James and Simon would allow this Netanyahu Speech given Sept. 24, 2009 as a kind of public service, to make people aware.
    PART 1

    PART 2

    PART 3

    PART 4

  13. Apparently I made a mistake with the Part 3 link of Netanyahu’s Speech above. Sorry for that. This is the Part 3 link

  14. This is too funny (well at 3:00 in the morning anyway)…

    From the SEC Division of Market Regulation:
    Advisory Committee on Market Information:
    Minutes of July 19, 2001 Meeting

    Simon Johnson, Bernie Madoff, a bunch of other concerned citizens, some dude from SAIC(???) and my high school debate partner. All in the same room, all sounding very serious about “information.”

  15. I thought the EU was created because:

    (1) idealists like Jean Monet wanted to intregrate the European economy because they thought it would prevent another WWI or WWII

    (2) a European union would be a politcal/economic/cultural “counter weight” to American power

  16. Interesting post. I suppose if Europe and the “emerging markets” created their own bank of last resorts, the United States could focus on repairing its own fiscal house. And where would Canada and Australia fit into a reorganized IMF?

  17. Sir, is there already a perfect solution? The US, African, Asian, and Latin American countries shall withdraw from the IMF, which will then be composed of all European countries where it is supposed to have the most relevance. The president and headquarters of the IMF will naturally be European. The others can set up, let’s say, the World Monetory Organization, or the WMO with headquaters somewhere in the middle of the pacific, alas, Hawaii. Everybody will be so happy!

  18. From the perspective of what the world really needs in order to confront global and local problems any IMF reform, to really mean anything, must mean much more than a simple reshuffling of the deck of the small very local pieces of land based representation at the board. Wasting time in that is an excuse for all those who have no idea what other things they could be discussing without looking like fools.

    Europe! Hah! Aren’t they worlds apart?

    On September 17 in the Financial Times ,Bernard Kouchner, the French minister of foreign affairs in “A tax on finance to help the world´s poor” proposed a tax on financial transactions of 0.005 percent and that would “raise €30bn”.

    But on September 25 also in the Financial Times, Peer SteinBrück, the German finance minister, in “A tax on trading to share the costs of the crisis”, September 25, proposes a tax on financial transactions of 0.05 percent that could “yield up to $690bn a year.

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