An Effective Global Partner
‘In the international financial institutions the EU, and the euro area, are still not represented as one. This fragmented voice means the EU is punching below its political and economic weight as each euro area Member State speaks individually. This is particularly true in the case of the IMF despite the efforts made to coordinate European positions.’ —The Five Presidents’ Report
The consolidation of the external representation of the euro area would enable its members to coordinate positions and defend their shared interests more effectively. A wider reform of international financial institutions would also make those institutions more representative, which supports the fundamental European interest in upholding a global financial level playing field. There are several international institutions for which this consolidation would be eventually necessary. However, in light of the extensive integration of the euro area in the economic and financial fields, the International Monetary Fund (IMF) is arguably the most strategic. The euro is the second most important global currency and the euro area one of the world’s largest financially integrated markets. However, its representation is still fragmented in many international fora, which have a say in global economic and financial affairs. This restricts the effectiveness with which the EU and the euro area pursue their interests. The IMF, for instance, is a key institution for the discussion of global financial regulatory matters and was a vital partner of the EU when dealing with the sovereign debt crises. However, for coordination reasons and voting purposes– there are almost 200 members in this global organisation – IMF members are grouped in ‘blocs’. Some of these aggregate members have rather limited common interests and needs. Currently, euro area members are in eight different IMF constituencies, two of which with a single country i.e. France and Germany (Box 1).
The same fragmentation of interest can be observed in other international institutions: at the World Bank, euro area members are in six different constituencies – France and Germany are again single countries. Although there are coordination mechanisms in place for the positions of euro area countries in both the IMF and the World Bank, they have clear shortcomings.
Global economic transformations add to the pressure to change the current representation arrangements in international organisations, and the EU and the euro area should be prepared for that discussion. The EU is the region with the second largest share of (nominal) global GDP: at around 22% in 2015, it is only somewhat smaller than the US (at 24%). However, changes in the relative importance of some countries, notably but not only emerging economies like China, have made the share of voting rights in international institutions like the IMF and the World Bank inconsistent with evolving global economic realities. 1
Questions for Debate
What are the advantages and perceived drawbacks of consolidation of the external representation? What are the potential avenues for consolidation?
The most important advantage of consolidation is to give strength and consistency to euro area positions in international fora, an even more important consideration in the likely scenario of further reductions of the EU and euro area voices in international financial institutions. A unified representation would help to counteract this trend. However, fears exist that reform could lead to a loss of representation and weight, and even to a potential loss of access to the services provided by those institutions. Consolidation of the euro area external representation would also require strong cooperation between the euro area Member States and the Member States which do not use the euro.
The consolidation of the euro area external representation will also imply negotiations with non-EU stakeholders. Reaching agreement with non-EU countries would be necessary, as all possible consolidation strategies imply changes in the ‘articles of agreement’ of these institutions. Finally, it is important to recall that a discussion about quotas and governance of international financial institutions like the IMF will take place with or without a change in the EU or euro area representation. Indeed, the next IMF quota review is already underway.
You can contribute to the debate by sending your opinion to SG-COMPLETING-EMU@ec.europa.eu.