EU mulls rotation system to solve IMF row - EU sources

Thursday, 30 September 2010 05:37 - - {{hitsCtrl.values.hits}}

(Reuters) - European Union nations may consider rotating some of their seats on the executive board of the International Monetary Fund to give a bigger say to emerging countries, two EU sources told Reuters. The United States is pressing Europe to give some of its nine seats to emerging market countries. Last month it blocked a resolution that would have maintained Europe’s strong position on the board, paving the way for the board to return to having 20 seats from the current 24 if no compromise is found. “The United States put the Europeans into a corner, and now they have to react,” said a source involved in the preparation of an informal meeting of European finance ministers in Brussels this week. The tug-of-war between Washington and the EU over the distribution of power at the IMF will throw the Fund into disarray unless a compromise is found by Oct. 31. The sources ruled out the idea of an overall reduction in the board’s 24 seats as well as that of the EU being represented by a single seat, as floated by the European Central Bank and the European Commission. The EU sources said the issue will be discussed at the Brussels meeting this week. The sources said European states could consider a rotation system that would de facto cede control of one or two seats to emerging countries. But they also said Washington had not demanded an overall reduction in the number of seats. “The U.S. never told the Europeans that it really wants to cut the seats to 20 from 24,” said a euro-zone official involved in high-level negotiations on IMF issues. “Washington is fine with a 24-member board as long as the EU controls fewer seats.” European countries and the United States dominate the IMF in a reflection of the post-World War II order, which is being challenged by the rise of emerging powers such as China. The board is one of the IMF’s main decision-making bodies and has overseen the approval of billions of dollar in emergency loans for countries hit by the global financial crisis. POWER-SHARING? Germany, France and Britain each have their own seats on the board at the moment. Belgium, Italy and the Netherlands all head groups of nations called “constituencies” with a seat each, while other European countries like Denmark, Poland and Spain, share their power with a mixed group of countries. According to the sources, European Union countries could change the make-up of some of the groups or constituencies involving European countries and rotate the chairmanship of the constituencies between several countries. “For example, Spain could leave its current constituency to move to a seat held by a small European country, like Belgium or the Netherlands,” the euro zone official said. “This way Madrid could have a better rotation system than the current one where it has to share power with big emerging countries like Mexico and Venezuela,” the source said. In that case, Latin American countries would have a seat on the board by themselves. “Italy is big enough to retain its executive director but its constituency could be reshuffled to include other countries. The same could be done by the groups including Switzerland, the Nordic countries and Poland,” the European source said. However both sources acknowledged that EU countries were divided on how to implement any change to the current system. “There is a lot of pressure on Belgium and the Netherlands to open their constituencies to other countries, while the big European countries don’t want to give up their power,” one of the sources said. The euro-zone official said the idea of a single chair on the board for EU countries was “a science-fiction scenario in short and even in medium term.” “Even the U.S. is not asking for this outcome. We are working on less ambitious solutions,” he added.