Global Policy Forum

Germany Proposes Ending US veto in IMF Board

Germany is expressing its independence from the United States and its more forceful global role. It is proposing that In exchange for the surrender of the US veto, the number of European members on the IMF board would be reduced. This is the first time an economically powerful country has dared to propose such an idea. Some call the IMF veto "the bedrock of US hegemony." Though Washington is unlikely to accept the idea, Berlin has conveyed an important message - that few are happy with today's global distribution of economic power. 

By Alan Beattie

September 14, 2010
Financial Times

The US should give up its veto over important decisions in the International Monetary Fund in return for Europe accepting a smaller say, Germany has proposed.

The suggestion, which experts say will be strongly opposed by the US, addresses a politically highly symbolic dispute about voting power and seats on the fund's executive board. Shifting power towards emerging market countries is one of the central elements in the Group of 20 nations' drive to make the fund and other international institutions more representative.

Last month the US used a procedural manoeuvre to force the European countries to agree reforms to the executive board by November 1. The 24-member board currently has nine European executive directors, and negotiations have been under way to increase representation from emerging markets, particularly in Asia.

Since the UK, France and Germany have seats by right, this would almost certainly mean smaller European countries such as the Nordic nations, the Netherlands and Belgium giving up seats.

In a parallel process, countries are debating the voting weights or "quotas" of countries on the board.

Wolfgang Schäuble, German finance minister, suggested on Tuesday that Europe would have to accept fewer seats. "I agree that representation of developing and emerging countries at the board will have to increase over time and that other countries or regions will have to reduce their representation as their quota shares are reduced," he told the Financial Times.

Mr Schäuble said that in return, "we should consider lowering the special voting majorities for the most important IMF decisions so that in the future we can do without a blocking minority for a single country or a very small group of countries".

Currently important decisions require a supermajority of 85 per cent of votes, and the US has a 17 per cent share. The Bric countries - Brazil, Russia, India and China - also have enough votes between them to block decisions.

Ted Truman, fellow at the Peterson Institute in Washington and formerly a senior official at the US Treasury and the Federal Reserve, said the German proposal was a "constructive opening gambit", but that the US and Bric countries would not give up their veto.

European countries collectively hold about 30 per cent of the votes on the board, meaning that a reduction of the supermajority threshold to around 75 per cent, as suggested by Germany, would still allow them to block votes. "The US will ask why it is expected to give up its own veto while Europe in effect still has one," he said.

The US Treasury reiterated the US's existing statement, saying it "supports reforming IMF governance structures to better reflect the realities of today's global economy".

Mr Schäuble said Berlin had informed other European countries of its proposal but it did not represent a common European position.

The World Bank, the IMF's sister institution, earlier this year agreed changes to its own board to increase emerging market representation.


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