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Conflict over DSK replacement

May 23, 2011

We have written in the past at this blog about the difficulties of achieving consensus in the EU in foreign policy and security affairs. In the week or so since Dominique Strauss-Kahn resigned as director of the IMF, however, EU member states seem to have reached a quasi-consensus on one fact: that his replacement should be a European. Since the international financial institution was founded after WWII, the US and European countries have maintained a system whereby an American has received the position of World Bank director while the IMF’s top spot has gone to a European. Indeed, throughout the organization’s 60+ year history, Europeans have occupied the top position every year except for two brief stints by Americans as interim heads (including John Lipsky, who became interim head following DSK’s resignation). The Americans and Europeans have been able to sustain this system due to the distribution of votes on the IMF’s managing board. The votes are distributed based on member state contributions, and the wealthy G7 countries control a majority of votes.

Since DSK’s resignation, several European leaders have come out with endorsements, either of a specific candidate, or of the general concept that the next chief should be European. According to EUobserver, German Chancellor Angela Merkel argued:

“In the current situation, when we have considerable problems with the euro, and the IMF is very heavily involved in this, this points to the fact that it is possible to put forward a European candidate and we should promote this within the community of states,” she told press.

EU Commission President Jose Manuel Barroso has also endorsed a European candidate, as have a number of other European leaders. The leading candidate at the time of this writing is French finance minister Christine Lagarde. Were she to be selected, she would become the first woman to head the organization full time, although American Anne Krueger served as acting director for several months back in 2004.

More so than in the past, however, this push for yet another European IMF chief is producing discontent among many emerging economies. Turkey, for example, is eager to see its former economy minister, Kemal Davis, get the nod. Davis, who currently works at the Brookings Institution, received credit for helping Turkey recover from that country’s 2001 financial crisis. Russia and other former Soviet countries have come out in favor of Grigory Marchenko, Kazakhstan’s central bank governor. South Africa and Australia released a joint statement calling for a more “transparent” selection process, in which they argue that the next IMF chief should be selected on the basis of merit, not nationality.

Due to the aforementioned distribution of votes on the IMF board of governors, the Europeans will certainly be able to get one of their own elected if they wish, as long as they can get the Americans behind them. The question is whether they want to provoke a political backlash among increasingly powerful emerging economies that will feel left out in the cold if another European is selected.

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