Musical chairs at the IMF

Sounds like the US is playing hardball at the IMF. The Economist’s Free Exchange blog takes up the tale:

When the IMF was formed, it was agreed that its executive board, which is its main decision-making body, would have 20 seats. Later, this was expanded to 24, but the expansion is technically an ad-hoc change which has to be reconfirmed by voting every couple of years. So far, it has always been renewed. But earlier this month, America simply did not vote on this year’s renewal, and because America has an effective veto (it has 16.74% of the votes in an institution that requires a super-majority of 85%), the renewal is hanging fire.

And no, the Treasury says, it wasn’t a mistake. So what gives? Well, if the US doesn’t renew the arrangement, then 24 seats have to go back down to 20. It’s time to play… international monetary musical chairs!

All this raises two intriguing questions. First, of course: who’ll be standing up when the music stops? Here’s a clue: Europe holds 9 of the current 24 seats. So, the Economist speculates, the likeliest outcome is that some of them will be merged: “for instance, there could be three euro area seats and two non-euro area seats (at the moment, there are 6 euro area countries with seats on the board, and 3 non-euro area Europeans (Britain, Denmark and Switzerland)”. So the likeliest losers? “Belgium, the Netherlands and their ilk”, who will be “furious” about being represented by (say) Germany what with the Euro crisis and all. 

And question number two: what’s the US up to? Here’s a clue:

America also gains subtly by taking the side of emerging economies. They might be less likely, for example, to make a big fuss about America’s effective veto at the fund. This is something some have been highlighting as a rule that needs to change—but perhaps now that America is using its veto to make emerging countries’ case, they might prefer to pipe down about what a terrible thing it is. Which would probably suit America just fine.

So, to sum up: the real action is happening between the US and the emerging economies while the hapless EU founders around outside the room, looking lame. It’s Copenhagen 2.0!