Apr 25, 2012
Center for Democracy and Civil Society

Europe x the BRICs

 

Christine Lagarde, french, managing director of the IMF

Not even the threat of an impending Euro-mageddon is enough to tame Europe’s cling to traditional positions of power. The current dispute at the IMF is witness to that. Europeans want the Third World to participate in building collective firewalls (in the form of new funds for bilateral loans) that are obviously meant to keep their own countries afloat; but when reminded of promises to reform the decision making structure at the institution, they tend to change the subject.

 Europe’s collective whining at this year’s IMF and World Bank Spring Meetings, which ended this past weekend in DC, won them US$ 430 billion in extra funds for the firewall. The money is to be made available by the IMF officially for whoever needs it. “It is basically to tell the markets: calm down, we have resources”, an IMF spokesperson told me. Europeans themselves contributed with the largest amount, about US$ 200 billion –which sounds right, if not insufficient. They have the money (well, some of them do) and this is obviously for their own sake. Japan gave US$ 60 billion; the UK, Korea and Saudi Arabia, US$ 15 billion each. BRIC countries (Brazil, Russia, India and China), meanwhile, are being pressured to give at least as much as Sweden and Switzerland (US$ 10 billion), and billions more than Australia, Norway or Denmark. The US did not give a cent.

Not so fast, they said.  Before opening their wallets, they wanted the big ones to move on with the implementation of the reform of the voting quotas at the IMF, which was agreed to in 2010 but remains just a promise. Not only that, they want to discuss more reforms. The BRICs thus decided to act as if they were a united group (they keep trying…) and declared they will join the firewall efforts, but before announcing the size of their contribution, Europe must commit to the reform of the quotas.

 It is not an unreasonable demand. But, unfortunately, it does not seem to get them very far.

First of all, the message came out clumsy and it only conveyed once again the confusion that is characteristic of the group. First Russia stated that it would contribute with between US$ 10 billion and US$ 20 billion, then the Russian Finance minister took it back and said no minimum amount was on the table just yet. Brazil, as usual, complained to everybody about the unfairness of the international system and from the start refused to talk numbers. India gave an interview saying that there was no conditionality whatsoever to the collaboration; it was not about the reform, it was just that they needed to discuss the matter with their domestic audiences first. And China didn’t say much.

Christine Lagarde, managing director of the IMF, was clearly displeased. She made ironic comments during press conferences and rolled her eyes when asked about the BRICs. I was covering the Spring Meetings this past weekend and asked her what did the Brics tell the IMF after all, since they each said a different thing to the public. She just smiled and replied to me: “Of course. It is in their interest to create as much confusion as possible. What they told me is clearly something that they do not want the press to know.” Lagarde is teasing, implying that Brazil, Russia, India and China did talk numbers with the institution, but want to pretend they are the tough guys now. Will it work?

Germany’s response to a question about the quota reform shows the Bric’s blackmailing attempt will be difficult. Berlin will keep its end of the bargain, they said. The agreements of 2010 will hold. But as for going further, like the BRICs want… the best answer the Germans could give was to say they “acknowledge” the desire. And then, they changed the subject.

Other

3 Comments

  • I agree with the US position not to contribute. The Europeans, and especially the French and the Germans, are running around trying to find other people to clean up the mess they created. They have been completely irresponsible in dealing with their internal problems. I didn’t like the way the US government handled bailing out the banks, but at least they addressed the problem.

  • Right. But either we agree that consequences of a breakdown would be generalized and we all contribute, or we leave them to clean up the mess alone. Why should Brazil contribute and not the US? Will it even help the country achieve its goals of more decision making power?

  • I agree. Brazil should not pay. The Europeans, specifically the Germans and the French, need to stop trying to externalize the costs of the bailout to the rest of the world.

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