At the recent G-20 meeting in Mexico, Brazilian finance minister Guido Mantega mentioned that Brazil, among other developing nations, would be willing to provide more financial assistance to ease the eurozone’s debt crisis. The catch is that in addition to the Europeans strengthening their financial stabilization funds — mainly through the European Financial Stability Fund — developing nations would ask for more power within the International Monetary Fund, or IMF. This is problematic for the United States.
The IMF was created in the mid-1940s to guarantee currency stability in the world economy. Today, it has expanded its oversight of the global financial system by offering financial loans to developing economies and — more relevant to the on-going eurozone crisis — providing financial assistance to economies in precarious financial situations.
Although the traditional head of the IMF has been a European, the institution is based in Washington, D.C., and is mostly a product of America’s superpower status and leadership following the devastation of World War II.
Undoubtedly, the European financial crisis is the IMF’s biggest test yet, and its most powerful members determine the direction it goes forward with. Subsequently, Brazil’s finance minister makes a good point. Most developing countries are growing more wealthy and prosperous by the day. Naturally, it is both economically and even ethically right that they have a larger say in how organizations like the IMF manage international financial crises.
But Brazil — a thriving democracy in its own right — isn’t the real issue. Earlier this month Chinese premier Wen Jiabao said China was considering increasing its role in providing funds for Europe. This is where the economic dynamics of the eurozone crisis will certainly lead to interesting political dynamics.
Suppose China does decide to commit to helping “rescue” Europe. Just recently, the IMF said it may need to increase lending by $600 billion to counter the effects of the eurozone crisis. China, with its ever-increasing financial muscle, can afford to foot a good chunk of that bill.
But the Chinese will not simply hand out free money. In addition to requiring the European Union grant China full market status — a technicality that would remove certain restrictions to Chinese exports and investments in Europe — Beijing will surely (and logically) seek political favors as well. This is where U.S. interests would be threatened.
Following the catastrophic political and economic situation the Europeans found themselves in after World War II, the U.S. wisely stepped in and provided the funds necessary for Europe to rebuild itself. The most important aspect of those funds is they weren’t “loans.” Rather they were essentially financial aid tied not to promise of repayment, but a promise that the Europeans would stop destroying one another and ultimately embrace a collective destiny.
It is time for the U.S. to step in once more and show Europe that it remains its most important and willing ally. Aside from China, Europe represents the U.S.’s most critical financial partner, and arguably, with two European nations on the United Nations Permanent Security Council, America’s most vital political ally. With the growing influence of Germany (and the potential for it to be added to the Permanent Security Council), these ties may become even more important.
Since the creation of the European Union, or the EU, and the adoption of the euro currency by most European economies, the union has managed to promote democracy, human rights and economic liberalization without fear of backlash from other political actors. Should China take the lead in “rescuing” the eurozone, the Europeans may be less inclined to speak out against much of the political volatility in Africa, the Middle East and East Asia.