Germany Asks US to Give Up Its IMF Veto

[*T*]

Germany has asked that the US surrender its veto power at the IMF in exchange for reduced European voting power, according to this article in the FT.

This is hugely important. Until now, the proposed increase in voting power for developing countries (which everybody agreed was necessary) was to come at the expense of European votes. Nobody mentioned the US veto (the US has 17% of the vote which gives them over the 15% required to veto any motion).

This is the first time the veto has been mentioned in the mainstream press and the first time a serious country like Germany has proposed ending it. The veto has blocked any change not in the favour of the US and has been a bedrock of US hegemony.

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.

[don]

Re: Germany Asks US to Give Up Its IMF Veto

Power within the IMF is a reflection of power outside the IMF. Germany is a little more powerful now than it was before the currency wars got hot. We'll know Germany is independent when the victor's armed forces leave. The rest is maneuvering for marginal gain.

[robertthegood]

Re: Germany Asks US to Give Up Its IMF Veto

This discussion must inevitably turn to financial support of the IMF. To me this is crucial. Responsibility must equate to financial support. This proposal may prompt me to look into the relative contributions. It is a new and different world but ultimately all the participants must put their money where their votes are. A difficult job but critical. Then we can start talking about representation and veto power. Interesting development.

[bill]

Re: Germany Asks US to Give Up Its IMF Veto

This discussion must inevitably turn to financial support of the IMF. To me this is crucial. Responsibility must equate to financial support. This proposal may prompt me to look into the relative contributions. It is a new and different world but ultimately all the participants must put their money where their votes are. A difficult job but critical. Then we can start talking about representation and veto power. Interesting development.

yes
Mr. Strauss-Kahn knows where the money is and he needs the biz.

http://www.imf.org/external/pubs/ft/...new071310b.htm

• The IMF will support the further strengthening of Asia’s role and voice in the global economy. This can be done, first of all, by building on the package of 2008 IMF reforms which boosted Asia’s voting power in the Fund. The IMF is working on a second stage to be completed by the G-20 summit in Seoul in November. In addition, the Fund will strengthen its collaboration with regional organizations in Asia—and, as a first step, Asia will be represented at a major meeting on this issue that the IMF is organizing in October 2010.
Strauss-Kahn said he wanted to make Asia feel at home at the IMF and become more involved in global solutions.
For Asia’s low-income countries, Strauss-Kahn noted they have the potential to become the next generation of emerging markets. Delegates also focused on continued inequality in Asia, despite the growing prosperity, with the IMF Managing Director talking about inclusive growth.

http://online.wsj.com/article/SB1000...086939844.html

SEPTEMBER 1, 2010
Whether there is support from either the developing world or the G-20 for these two ideas remains to be seen. There is still a stigma associated with borrowing from the IMF, as much as the Fund is trying to break it down. And the U.S., the only country with veto power on the IMF board, might resist reforms that could in some way weaken the power-broking influence that the current system affords it whenever crises erupt.
But the balance of power in the global economy is shifting, with Emerging Asia growing at almost double-digit rates while the economies of the U.S. and Europe are mired in post-crisis debt. The fact that these proposals are coming forward is an indication that many nations are wary about depending on the U.S. when its own outlook is so weak.
For now, demand for the dollar as a reserve currency is hardly waning. This year's record-breaking bull run in U.S. Treasurys is evidence of that.
But China is shifting some of its $2.4 trillion in reserves into Japanese yen and Korean won, which in part explains the recent runup in those currencies. And whereas the Federal Reserve's currency swap agreements with other central banks played a critical role in boosting global dollar liquidity during the 2008 financial crisis, these have since been complemented by bilateral and multilateral swap agreements in which the U.S. does not figure.

Most important is the Chiang Mai Initiative, launched in March by the 10 members of the Association of Southeast Asian Nations plus China, Japan and South Korea. That program draws upon a pool of $120 billion in foreign reserves to back a multilateral system of currency swaps that can be triggered if a member faces a currency crisis.
South Korea had wanted to use the Chiang Mai Initiative as a template for a global currency swap agreement. But on Tuesday, Seoul's Presidential Committee for the G-20 Summit said "the majority views (among the G-20) are that such an idea could infringe upon the sovereignty of central banks."
Presumably, the Fed and the European Central Bank are uncomfortable committing to accept certain currencies of potentially dubious value. Ironically, however, the interest in multilateral solutions is greatly dictated by other countries' concerns about the dollar.
In this sense, an expanded IMF stabilization fund--one that's not just geared toward developing nations but toward protecting the whole world from financial turmoil--offers a compromise.
Were it to take off, the IMF could evolve into a true international lender of last resort. And giving a multilateral body like the IMF more power at the expense of the U.S. would surely be preferable to having another, potentially less benign superpower simply takeover the reins.
The dollar is still king. But times are changing. It's in everybody's interest to design an international framework before the next big crisis erupts.

[gnk]

Re: Germany Asks US to Give Up Its IMF Veto

This discussion must inevitably turn to financial support of the IMF. To me this is crucial. Responsibility must equate to financial support. This proposal may prompt me to look into the relative contributions. It is a new and different world but ultimately all the participants must put their money where their votes are. A difficult job but critical. Then we can start talking about representation and veto power. Interesting development.

When you say "financial support," you mean money out of thin air? Is that the type of money you allude to? I guess so, there's no other type of money, no?

The US can create money at "virtually no cost," as Bernanke once said. Germany still has to abide by the EU/ECB rules. But for how long? That's the question.

I give the IMF, and the EU as it exists today, five years left of existence.