By Walden Bello
The veto of the German candidate for the IMF Managing Director post, Caio Koch-Weser, by the United States and his endorsement by the European Union was the second major confrontation between the US and Europe in three months. Last December, EU-US differences over agricultural liberalization helped sink the third ministerial of the WTO in Seattle.

What was a subject of academic debate has now become reality: that the relationship between the European Union and the United States has moved from one marked mainly by alliance to one dominated by competition. This struggle for global leadership has a number of other fronts, including European attempts to have a stronger say in European security issues via-a-vis Washington, the efforts by European Social Democrats to chart an economic path distinct from Amercan free-market capitalism, and the Euro’s struggle to become as important a reserve currency as the dollar.


The Euro-American competition poses presents both an opportunity and a challenge to Asia and the developing world. The power of multilateral institutions like the WTO, IMF, and World Bank rested on the ideological unity and strategic coordination between the US and Europe, with the latter satisfied with playing second fiddle. These conditions are disappearing, at the same time that the WTO and IMF have hit rock bottom in their relationship with the developing world. Were they to act in a more unified manner to exploit the differences between the US and the EU, the Asian and developing country blocs could exercise a strong influence on the future direction of these two institutions.

This was the lesson of Seattle. A united front of sorts among the developing countries on the issue of decisionmaking combined with a EU-US stalemate on key issues and massive street protests to torpedo the ministerial and the prospects of another round of damaging trade liberalization.

Exploiting Rivalry

Like the WTO, the IMF is undergoing a severe crisis of legitimacy. As in Seattle, massive street mobilization awaits the IMF-World Bank meetings in April. Under these conditions, the moves of the developing country members of the Fund could have considerable impact. A campaign among Asian and developing country governments to withhold support from the European or American candidates unless they offer a program of reform instead of simply relying on the sacrosanct tradition of filling the IMF managing director post with a European (and the World Bank presidency with an American) could open up the space for reducing the power of the IMF and maybe transforming it along lines more congenial to developing countries.

Unfortunately, it is the US that has so far done the manipulating It has succeeded in putting up a number of African countries to declare their support for Stanley Fischer, the deputy managing director of the Fund who also happens to be US Treasury Secretary Larry Summers’ good friend, close colleague, and former mentor at the Massachusetts Institute of Technology. Not surprisingly, Asian observers of the jockeying at the IMF are aghast that some developing countries would support Fischer, who was instrumental in the imposition of the IMF programs that worsened the financial crises that hit Thailand, Korea, and Indonesia.

The shortsightedness and timidity of Southern governments is breathtaking. Instead of taking advantage of the crisis of legitimacy of the WTO and IMF post-Seattle, they failed to use the recent meeting of the United Nations Conference on Trade and Development in Bangkok to assert a stronger role for the South in framing the rules of global governance in trade, finance, and development. Indeed, under the theme of a “time for healing the wounds of Seattle,” they allowed the chiefs of the WTO, IMF, and World Bank to use the conference as a platform to dish out the same old platitudes of liberalization, deregulation, and free-market globalization.

The window of opportunity is, however, still there, but it will take skilled and bold leadership from the ranks of the Group of 77 in the IMF to convert the current crisis into a real opening through skilled alliance-building within the Fund and cultivation of street protests in Washington, DC, and globally as a battering ram for real change at key conjunctures, like the IMF-World Bank meetings this year.

The Challenge

There is, however, a bigger and more strategic challenge posed by the Euro-American competition. The EU-US struggle underlines the fact that the dynamics of international economic relations in the future will rest greatly on the relationships between big economic blocs. If the EU can now challenge the US, it is because it has become one massive market, with common external economic policies, increasingly coordinated macroeconomic policies, and a single currency that unites half of its members. A concrete, successful embodiment of the fruits of supranational cooperation is Airbus, which last year snagged more orders than the US national champion Boeing and is on its way to displacing the latter as the world’s premier maker of civilian aircraft. The Airbus experience, which underlines the importance of planning, coordinated investment and research, and subsidization, is likely to be repeated in other hi-tech industries such as electronics, software, and optoelectronics.

Globalization in the sense of national borders blending into one global economy is not the wave of the future. Globalization in the sense of competing regional economic blocs is.

In the case of East Asia, a degree of regional economic integration has already been achieved, largely via the export to the region of large parts of Japan’s manufacturing plant. Already 55 per cent of Asian trade is inter-Asian trade. But the unification of markets, macroeconomic coordination, technology sharing, and evening out of regional disparities can only come through formal economic integration. Unless East Asia moves in this direction soon, the likelihood of being left behind in the EU-US competition becomes a very stark possibility. And what is true for Asia is also true for Africa and Latin America.

The skeptics will, of course, raise the usual criticisms — that old national rivalries stand in the way of formal integration, that it took Europe half a century to get where it is. But then, were not national rivalries even more intense in Europe at the beginning of European integration in the fifties than anything you find in Asia today? And what is to prevent the East Asian region, which carried out the “miracle” of bringing about massive industrial transformation in a generation, from accomplishing the task of economic union in less?

The EU challenge to US hegemony confronts countries in Asia, Africa, and Latin America with their moment of truth. Unless they also move toward regional economic union, they will increasingly become bit players in the global economic drama.

* Walden Bello is the Executive Director of Focus on the Global South, an international policy research and advocacy organisation based in Bangkok.