EU states find common ground in World Bank’s Wolfowitz crisis

The current crisis facing the World Bank over its President Paul Wolfowitz has brought into sharp focus the role the EU and its members states play in the organisation.

Three EU states - the UK, France and Germany - are among the five strongest members of the bank in terms of voting rights and influence. Japan and the US are the other two and while they have greater voting power than the big EU three, the number of votes held by the 27 EU states outweighs them.

These three EU countries have not been silent on the ongoing Wolfowitz scandal, involving a promotion and pay increase for his partner, saying that the crisis has damaged the bank. The Netherlands, Luxembourg and the European Commission have also voiced concerns while the European Parliament last week (25 April) passed a resolution calling on Wolfowitz to step down.

But despite the strong reactions from Europe, Wolfowitz has so far managed to hold on to his job. He set out his defence to the board of directors on Monday (30 April). On a visit to Brussels yesterday (2 May), he said: "We need to follow due process but in the meantime we need to stay focused on the very, very important work at the bank."

One of the possible reasons why Wolfowitz has been able to bat off European criticism is the lack of co-ordination among its member states. Despite the billions of euros in development aid the European Commission manages on behalf of the member states at EU-level, the Commission has no formal role at the World Bank.

It pays no money directly to the bank, has little influence and no voting rights but does finance joint-projects. Between 2001 and 2005 the Commission spent €2.083 billion on helping countries affected by the Asian financial crisis in the 1990s, Iraqi reconstruction and assistance to heavily indebted countries. Yet when development commissioner Louis Michel addressed the bank’s board of governors in one of their twice-yearly meetings last month, EU states had to lobby for him to be given the floor. "It’s not an automatic right," said one Commission official.

The member states themselves are disjointed and this is most starkly shown in the board of executives, the 24 officials who make the day-to-day decisions at the bank. The UK, France and Germany have permanent seats on the board with the rest of the EU states scattered into ‘constituencies’ where a number of countries are grouped under individual seats. Some EU states, such as the Netherlands, because of their relative economic wealth and the money they pay to the bank, permanently chair these constituencies.

Other EU states can be found in bizarre groupings. Ireland, for example, currently sits in a group with 12 other countries, none of which is European, including the Bahamas, Jamaica and Grenada, which is chaired by Canada. Belgium on the other hand chairs a group which includes Austria, Luxembourg, Slovenia, the Czech Republic, Slovakia, Turkey, Belarus and Kazakhstan.

Moves have been made over recent years for EU countries to work together and they now meet on a weekly basis, under the chairmanship of the country holding the EU presidency, to discuss issues.

Reform of the bank currently being discussed could also provide an impetus for a bigger "EU voice". Such reform could involve giving emerging economies, like China and India, greater voting rights which would result in smaller EU states losing influence. "Countries such as Belgium would lose out, hence the need for more co-ordination among the EU states," said the Commission official.

But this type of co-ordination appears a long way off, given that it would mean the three powerful EU states having to share influence. "It is ultimately up to the European ministries of finance and no one wants to give up what they have. In fact there is a tendency in the opposite direction and we can see this from talks at the UN Security Council where Italy and Germany are looking for permanent seats," said Karel Lannoo, chief executive officer at the Centre for European Policy Studies.

"Ideally there would be more EU co-ordination but nobody wants to lose out," said one EU diplomat.

A stronger EU voice would not only be important for dealing with crises such as the current one but could stand as a bulwark for European ideas on development against US ones. Wolfowitz came to the World Bank bent on making the fight against corruption in developing countries a priority. "We didn’t quite agree with the focus on anti-corruption. We are not saying it’s not a plague for Africa but we are saying we should look at the whole governance issue and see it as a symptom of a disease and not a disease as such," said the Commission official.

The Commission and member states were able to alter some of the emphasis of Wolfowitz’s agenda but there was "still too much anti-corruption", said the official.

EU co-ordination at the bank is being put to the test over the current crisis. Monica Frassoni, Italian Green MEP who chairs a European Parliament group on the World Bank, said that the time had come for co-ordinated action. "EU states are starting to exert pressure but we have to act together," said Frassoni.

The current crisis facing the World Bank over its President Paul Wolfowitz has brought into sharp focus the role the EU and its members states play in the organisation.