The draft paper, seen by EurActiv, also calls for the G8 to be enlarged. "Further reform of the G8 should be considered to make this group more inclusive of the emerging countries," the document says.
However, according to the paper, the biggest concession from Europe would be giving up its permanent chair at the IMF. "One step further could be to make the IMF managing director and World Bank president selection processes more open and transparent," says the draft document, which will be discussed by EU finance ministers at a meeting in Brussels next week (4 November).
The aim of the meeting will be to prepare a common EU line to be adopted at a European summit on 7 November, ahead of a global summit in Washington on 15 November that is expected to launch major reform of the international monetary system (EurActiv 27/10/08).
Europe accepts that the seat held today by Frenchman Dominique Strauss-Kahn, which since 1946 has been the exclusive prerogative of Europeans (four Frenchmen, two Swedes, one Spaniard, one Belgian, one Dutchman and one German), may fall into other hands. "Further association of emerging and developing countries is essential," reads the paper.
"Other relevant actors should be more strongly legitimated," adds the document, in a veiled reference to China and other emerging powers, which in turn are asked to take on "increased responsibility" in the IMF. China and India's contributions to the IMF budget, in particular, are currently well below their potential (see background). As well as those two countries, the proposal might also displease the US, which may not be happy about the idea of giving up control of the World Bank.
The document goes further, requesting a review of the international monetary system, considered to be one of the causes of the "indebtedness of the global economy". The French EU Presidency is calling for "clearer and more robust exchange rate analysis" to assess responsibility for the current crisis.
In a previous draft, the paper explicitly asked for "broader reflection on the inadequacies of the current international monetary system," which stands accused of "encouraging the sterile accumulation of reserves and diverting the monetary flux of productive investments in developed countries as well as in developing countries". This could be considered a thinly-veiled reference to China, where a steady double-digit surplus in balance of payments allowed Beijing to set aside foreign currency reserves worth $2 trillion.
Many EU countries share the French view, in particular those hit harder by low-cost Asian exports, which were also made possible by the current monetary imbalances. Indeed, the Chinese renminbi is pegged to the dollar and kept artificially low to favour exports. The free-floating currencies of competing Asian countries are consequently driven downward to keep their products competitive. Cheap Western products find themselves under threat and are sometimes even pulled from domestic markets.
