Power games behind battle over IMF job

Date: 24/02/2000

Frustration over the EU's foot-dragging in deciding who it should nominate to head the International Monetary Fund boiled over this week, with two non-Europeans entering the race. The move came just days before Union finance ministers are expected to choose their candidate for the post. Tim Jones reports on the internal battle which has delayed a decision for so long

ON THE face of it, the row over Caio Koch-Weser's bid to head the International Monetary Fund is just another in a depressingly long history of meaningless spats over which business-suited bottom should rest on which global agency hot-seat.

But, for once, there is much more to it. This simmering dispute - which is likely to be settled by EU finance ministers at a meeting next Monday (28 February) after three months of back-stairs wheeler-dealing - has revealed a significant shift in the internal Union balance of power. It has also bolstered the case for a change in the EU's rules to allow nominations for such top jobs to be decided by qualified majority vote, after frustration with Union foot-dragging prompted two non-Europeans to throw their hats into the ring this week.

The 'take-no-prisoners' style of German Chancellor Gerhard Schröder's campaign to make his most senior finance-ministry official managing director of the world's top financial agency has taken even experienced officials by surprise.

When Frenchman Michel Camdessus announced his premature resignation in November after 12 years as IMF chief, Schröder was the first international leader to pounce.

The Americans, who traditionally hold the World Bank presidency while the Europeans (aka the French) run the IMF, stayed out of the fray for as long as they could. Paris was hamstrung since its obvious candidate, Bank of France Governor Jean-Claude Trichet, is supposedly due to take over at the European Central Bank in 2002 and would not therefore be available for a full IMF term.

Schröder lost no time in nominating Koch-Weser, an obscure World Bank official he had only appointed to the finance ministry last April to replace Oscar Lafontaine's lieutenant Heiner Flassbeck. The chancellor then raised his favourite's candidacy at every gathering; at bilateral summits with French and British leaders and repeatedly with the Americans, most notably with President Bill Clinton at last month's Davos World Economic Forum.

In mid-January, his chief foreign-policy aide Michael Steiner took the extraordinary step of summoning ambassadors from 40 IMF member countries to the chancellery to plead Koch-Weser's case and Schröder followed this up with a letter and phone-call blitz to the 24 members of the fund's executive board.

"In my experience, I have never seen the Germans do anything on this scale before - at least not for a job," said one highly experienced Union economic-policy official who has seen some of this lobbying at first hand. "They have acted like the French - I suppose that is the whole point."

Schröder's high-pressure lobbying comes hard on the heels of stepped-up German demands for a permanent seat on the United Nations' Security Council, protectionist resistance to mobile-phone giant Vodafone AirTouch's take-over of domestic engineering and communications firm Mannesmann and boycotts of EU meetings where German translation has not been provided.

French diplomats despaired in the early days of the Schröder government that the new man and his coterie in the chancellery had no comprehension of the importance of the Franco-German axis. To Paris, it is the political equivalent of the Clinton marriage: constantly tested to destruction but unbreakable and mutually supportive.

Since the allegations emerged that former French President François Mitterrand skimmed €15 million from a state-backed refinery purchase in the east to pump into former Chancellor Helmut Kohl's election campaign coffers, the EU has had a glimpse of how far previous leaders may have gone to protect the axis.

Schröder has been told many times, by French ministers and some of his longer-standing diplomats, how important it is, and he does pay lip service to it. But, unlike Bill and Hillary, the four-times-married Schröder appeared to consider the relationship disposable. To him, say officials, Germany under Helmut Kohl was too supine for too long, allowing the French in particular but also the Benelux countries to walk all over it.

When French President Jacques Chirac held out into the small hours in May 1998 against allowing Wim Duisenberg a full eight-year term as president of the European Central Bank, there was a lot of talk of the political capital he had blown.

But it is only now becoming apparent just how much. Schröder, watching how his predecessor was humiliated on television back in his home state, is said to have vowed never to let that happen to him. The no-holds-barred way in which he imposed his man - chancellery aide Bodo Hombach - as head of the Balkans Stability Pact last summer shocked representatives from small countries.

"The chancellor is utterly convinced that Germany has suffered from an unwillingness to throw its weight around," said one veteran diplomat, arguing that this had prevented Berlin from commanding the number and quality of top global jobs its sheer presence in the world economy warrants.

The problem for Schröder has been twofold: his candidate's inexperience at the economic top table, and - as so often seems to be the case - an election year in the US. A new and irascible American treasury secretary has been getting his feet under the table, and Camdessus had become a bogeyman to Congressional Republicans, who regarded him as a 'French Socialist' whose largesse in Asia and Russia had encouraged immorality by rewarding the corrupt.

Treasury Secretary Larry Summers had been collared repeatedly by Republicans during his confirmation hearings, and he responded by calling for a new-style, pre-emptive IMF at a speech to the London School of Economics before Christmas. The criticism of Camdessus was implicit and also unfair, given that Summers had been intimately involved - not to say instrumental - in bailing out Mexico and Indonesia.

The failure of the Europeans to unite behind a candidate gave Summers the opportunity to break with tradition and promote his own candidate: the highly- respected number two at the IMF, Stanley Fischer, who has now been formally nominated for the post by a group of African countries. Even the normally reticent Japanese emerged with a candidate of their own in the shape of former Finance Minister Eisuke Sakakibara, who also became an official contender this week.

This in turn allowed the French government to argue that Koch-Weser's inexperience would effectively downgrade the status of one of the supranational jobs of which it is so fond, since his predecessors Camdessus and Jacques De Larosière had both been Bank of France governors before they took the plane to Washington.

Paris' claim, which French officials relayed to their counterparts in Berlin, was that the Americans just would not wear Koch-Weser - a notion that tickles their EU partners. "The idea that the French were standing up for American interests just makes you want to laugh out loud," said one diplomat who heard the arguments presented.

However, the French were not alone. The British had a similar problem with Koch-Weser. Since Gordon Brown became UK finance minister in spring 1997 and the Asian crisis struck, the UK treasury has taken a closer interest in the workings of the IMF and how it could be made more pre-emptive in dealing with financial meltdowns.

Brown never had the slightest intention of swapping British politics for Washington, despite stories to the contrary in some newspapers. He did, however, favour putting a real heavy-hitter into the job: a pre-Kohl-crisis Theo Waigel, former UK Finance Minister Kenneth Clarke or even ex-Commissioner Sir Leon Brittan. But he would not have said no to Andrew Crockett, a former British treasury official who had since taken over as chief of the Bank for International Settlements in Basle.

Officials say Paris would not accept the appointment of another Briton to such a top post, following the elevation of George Robertson to head NATO and the perception that the European Commission has been turned over to euro-pinching British shopkeepers who know the cost of everything and the value of nothing.

The EU's smaller countries are hoping that a proposal from the Portuguese presidency that the Intergovernmental Conference on EU treaty reform should consider abolishing national vetoes for these decisions will take flight.

But grey-haired small-state officials are sceptical. "Even if that was agreed, don't try to tell me that a German, French or British-backed candidate will not be a lot more equal than all the others put together," said one.

Major feature. Frustration over the EU's foot-dragging in deciding who it should nominate to head the International Monetary Fund has boiled over, with two non-Europeans entering the race. The move came just days before Union finance ministers were expected to choose their candidate for the post. Article reports on the internal battle which has delayed a decision for so long.