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Europe gets a taste of its own medicine

Through the IMF, Asian capital now has a stranglehold on European nations – just as Europe did durin

A fierce and profoundly important battle is under way to find a new leader for the IMF. Angela Merkel fired the starting gun on Monday last week when she insisted that the disgraced former head Dominique Strauss-Kahn must be followed by another European.

It seemed almost impolitic at the time – it wasn't entirely clear what had happened in New York – and there were more than a few prominent figures leaping to Strauss-Kahn's professional, if not his personal, defence. But Merkel had good reason to come out of the blocks so quickly.

The IMF has historically been Europe's toy to dispose of, just as the World Bank has always been led by an American. But the rest of the world would be only too happy to see a pair of non-European hands take hold of the top job at the IMF – a job that, after a few years in the doldrums, became once more a premier seat of global power under Strauss-Kahn .

In all likelihood, they willo be disappointed once again, and Merkel is likely to get her way. The French finance minister, Christine Lagarde, is the current strong favourite to replace her countryman as the IMF's next head. And if not her, then it will be one of the other Europeans – Turkey's Kemal Dervis and Germany's Axel Weber being my tips over and above the now slow-running Gordon Brown – who all already have the wind in their sail.

But it may yet prove to be a hollow victory for Europe, because of one of the legacies of Strauss-Kahn's leadership that is going to follow the IMF as surely and as doggedly as last week's rape allegations will follow him.

In order to reinvigorate the IMF and turn it into the decisive and powerful body it has become under his leadership, Strauss-Kahn retooled its whole approach and boosted its coffers by promising the rest of the world a greater say in the way that it was run, up to and including reform of the controversial quota system that has long distorted IMF politics in favour of Europe and America. He did this above all by opening the door to the might of Asian capital. That is a door it will now be impossible to close.

So Europe's leaders ought to beware. While they may in the very short term get what they are asking for, their demands are looking increasingly unjustifiable to the rest of the world. Latin America did not have one of its leaders as head of the IMF during its debt crisis of the 1980s. And nor, more to the point, did Asia during the Asian financial crisis of the late 1990s.

It is worth recognising that Europe is today living on political debt to Asia at least as much as it is living on economic debt to the IMF. And what sparked Latin America's lost decade? It was, in part, the US Federal Reserve's self-protecting interest-rate hikes that tipped Mexico over the edge in 1982.

Asian capital today is not so far away from having a similar silent stranglehold on European nations. So a Latin American-style crisis in Europe remains a distinct possibility.

And however much some politicians bay for the blood of austerity in Portugal, Ireland and Greece to avoid this, the truth is that the balance of our fate will be determined by those who are footing the bill from far away. That, after all, is what Europeans at the IMF used to tell the rest of world.

Simon Reid-Henry is a lecturer at Queen Mary, University of London.