Gros, Daniel

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Daniel Gros is Director of the Centre for European Policy Studies (CEPS) in Brussels. This commentary 
was syndicated to newspapers worldwide by Project Syndicate. 
CEPS Commentaries offer concise, policy-oriented insights into topical issues in European affairs. The 
views expressed are attributable only to the author in a personal capacity and not to any institution with 
which he is associated. 
Available for free downloading from the CEPS website (http://www.ceps.eu) ? © CEPS 2010 
Place du Congrès 1 ▪ B-1000 Brussels ▪ Tel: (32.2) 229.39.11 ▪ Fax: (32.2) 219.41.51 ▪ http://www.ceps.eu 
Europe in the IMF 
Daniel Gros 
4 October 2010 
urope’s leaders never tire of reminding their constituencies, almost like a mantra, that the 
major emerging-market countries are overturning the existing global economic order. But 
when it comes to recognizing that reality in the world’s international financial institutions, 
they adopt a different tune. This is particularly true of the eurozone. 
The eurozone as such has no representation in the international financial institutions. Instead, 12 
eurozone countries are represented on the board of the International Monetary Fund via six different 
“constituencies,” or country groups. The two largest, Germany and France, have a constituency all 
their own. Ten other eurozone members are part of four other constituencies headed by Belgium, 
the Netherlands, Spain, and Italy. However, these four constituencies also contain more than 20 
other countries, most of which are not even EU members. 
Together with the Scandinavian and British constituencies, there are thus eight EU representatives 
on the IMF’s executive board. Given that the IMF’s Articles of Agreement stipulate that there can 
be only 20 board members, this means that 40% of all the IMF’s executive directors are Europeans, 
with one-third coming from the eurozone. 
The IMF is a prime example of the over-representation of Europeans in international fora. Counter-
intuitively, however, the excessive number of Europeans actually diminishes Europe’s influence, 
because they usually defend national interests, which are often divergent. The net effect is that 
common European interests are not represented at all. 
Contrast this current condition of extended misery with the only sensible long-term solution: a 
pooling of IMF quotas by all eurozone countries. The eurozone would then have one constituency, 
or seat, on the Fund’s executive board, filled by a candidate nominated by the eurozone group of 
finance ministers. 
The European Central Bank could also, perhaps, be involved, nominating the deputy of the 
eurozone executive director at the Fund. In this way, Europe’s fiscal and monetary authorities 
would be forced to cooperate in shaping their input into IMF decisions. Many countries (including 
Germany) already follow this “double-headed” approach. 
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2 | Daniel Gros 
The eurozone representative would be very influential, because he would represent an even larger 
quota than that of the US. Indeed, the US Treasury’s de facto dominance within the IMF would 
become a thing of the past. 
But, given the scant interest of European Union members in transferring further competences (and 
juicy international positions) to the EU level, the chances that this solution will prevail seem 
remote. Germany, in particular, feels that it has no reason to share its IMF representation with other, 
fiscally weaker eurozone members. And the French seem scared of contagion: once France agrees 
to a common eurozone seat at the IMF, others could cite it as a precedent to be applied to the United 
Nations Security Council, where France would then risk losing its permanent seat to a common EU 
representative. 
Until now, the rest of world could only grumble at Europe’s obstinate refusal to recognize its 
relative decline. Since no European country would agree to give up its seat on the IMF’s executive 
board, the only way out was to add more and more temporary seats for the dynamic and 
underrepresented emerging economies. 
Such a process, however, cannot go on forever, because with each increase in size, the IMF’s board 
becomes less and less effective. This is why the US has now decided to throw a cat among the 
European pigeons. 
The US (which has veto power) has now taken the stance that it will no longer approve the higher 
number of executive directors (24 at present). This has confronted the Europeans with a quandary: 
if they do not agree to give up some seats on the IMF board, some emerging countries, such as 
Argentina, Brazil, and perhaps even India, would lose theirs. The EU does not want to be held 
responsible for this. 
The pigeons are thus fighting among themselves over who should be sacrificed. Until now, it could 
be argued that the eurozone did not have a common fiscal agency that could represent common 
eurozone interests. But this has now changed with the creation of a European rescue fund in the 
form of the European Financial Stability Facility (EFSF). 
Funding the next intra-eurozone rescue will be rather cumbersome and costly, because financial 
markets distrust complicated structures like the one set up to finance the EFSF. This suggests a 
golden opportunity for Europe to make a virtue of necessity by pooling its access to much-cheaper 
IMF funding. 
If, for example, Ireland (or Spain) needed emergency support, the other eurozone countries could 
simply agree to lend it their IMF quotas. The troubled country could then rapidly obtain a large IMF 
loan, given that the eurozone countries’ quotas total about €60 billion – and that IMF loans can 
easily reach multiples of the quota. 
Creditor countries like Germany would also gain, because they would not need to extend vast sums 
in guarantees to the EFSF while still safeguarding their interests within the EFSF’s existing 
structure. All eurozone members, then, have an interest in concentrating in a smaller number of 
constituencies, with the EFSF representing their collective interests within the IMF.  


Europe in the IMF

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