The New York Times on the Web
October 7, 1998
http://www.nytimes.com/library/world/global/100798imf-europe.html
Europeans Challenge U.S. in Economic Crisis
By RICHARD W. STEVENSON
WASHINGTON -- After more than a year on the sidelines, European governments are challenging the United States over how to address the world financial crisis, suggesting that new ideas and leadership are needed as the turmoil persists and Congress continues to block new funding for the International Monetary Fund.
In ways both subtle and overt, European officials have used this week's gathering of finance ministers and central bankers here at the IMF and the World Bank to remind the United States that they represent an economic power to be reckoned with, and one with the authority to be listened to on the world stage.
By flexing their muscles, Europeans are shedding their traditional deference to the United States on global financial policy as they prepare for a new era in which most of Europe will be bound into a single economic unit by a common currency.
Consumed by high unemployment and other economic problems at home, and unconvinced initially that the crisis that began last year in Asia would have much effect on them, European countries stayed largely in the background over the last year as the United States worked closely with the IMF to keep the turmoil under control.
But in the last several weeks and during the meetings here in the past few days, they have proposed shifting more power into a committee within the IMF, a move that could have restricted the ability of the United States to exert its influence directly over the fund's management.
They have given far more enthusiastic consideration than the United States to efforts by the World Bank to shift the focus away from austerity programs to poverty-fighting and to challenge the orthodoxy that controls on the international flow of capital are always a bad idea.
With their own economies strengthening after years of stagnation, European officials even dared to criticize domestic politics and policy in the United States, which for the last five years has not been shy about lecturing the rest of the world about how to achieve prosperity and stability. At the top of their list was the unwillingness of the Republican-controlled Congress to provide the full $18 billion in new funding for the IMF requested by President Clinton.
Dominique Strauss-Kahn, France's finance minister, pointedly suggested that those countries who were willing to shore up the IMF's financial condition act on their own without waiting for the United States. He also suggested that the United States should consider increasing government spending or cutting taxes to give a boost to the American economy, given the flexibility created by the Federal budget deficit.
"I cannot really believe that if the slowdown in growth is very important, the administration will not use at least part of the surplus to sustain growth," Strauss-Kahn said.
In Asia, where Europe has been seen as disengaged and reluctant to commit money or political capital to dealing with a crisis that has sent millions of people spiraling into poverty, Europe's increased involvement is seen as long overdue.
"At least they should realize there's no such thing as an isolated country," said Sir Donald Tsang, Hong Kong's financial secretary, warning that the Europe's economy would inevitably be harmed if the turmoil was not contained.
American policymakers played down any idea of a rift or confrontation with Europe, saying there were many ideas that deserved to be considered. But one American official involved in Asia policy said the failure of the American-led effort to end the turmoil "further emboldened our European friends" to mount "a more concerted challenge to the kinds of policy directions we've been offering."
To some extent, analysts said, France, Britain and Germany are stepping into a vacuum created by the lack of any obvious new ideas about how to address a crisis that has proven resistant to the traditional market-friendly cures favored by the IMF and American policymakers led by Treasury Secretary Robert Rubin.
"Clearly in the past the Americans had a free hand in setting policy goals and the global investment agenda," said Stephan-Gotz Richter, the president of TransAtlantic Futures, a Washington consulting firm that tracks European-American relations.
"Some of the citadels of American power are shaken, and the Europeans are now in a position to be a check and balance on American influence," he said. "It's not a concerted effort to outflank the Americans, it's a competition of the best ideas."
But some of the bankers and government officials attending the meetings and informal discussions here said Europe's assertiveness is part of a broader desire on the part of France and Germany to pound home the idea that the European Union is as big an economy as the United States and should be afforded the same voice in global economic policy.
The planned start of the first phase of European monetary union on Jan. 1, they said, has increased the feeling among Europeans that their clout should be respected by the United States and the rest of the world.
"I really do see a new European self-confidence coming up here, although I think we're slightly uncomfortable with it and don't really know what to do with it," said Klaus Friedrich, the chief economist at Dresdner Bank, Germany's second-largest financial institution.
Indeed, it is difficult to define a European approach to the world's current problems. With Britain, France and Germany all now having left-leaning governments, there is greater willingness to consider intervening in markets, although no consensus about actually doing so.
The new German government in particular, although not represented at this week's meetings, has made clear that it sees controls on capital flows as a subject for serious consideration. Germany's chancellor-elect, Gerhard Schroeder, is scheduled to meet with President Clinton here on Friday.
Hans Tietmeyer, the head of Germany's powerful central bank, hinted here that the Bundesbank might now be willing to cut interest rates to help avert a global downturn, a shift from his previous insistence that a German rate cut was unjustified.
Prime Minister Tony Blair of Britain has been pressing the biggest industrial nations to rethink the structure and goals of international financial institutions like the IMF and the World Bank. Gordon Brown, the chancellor of the exchequer, proposed regular meetings of the fund, the bank and international banking supervisors to coordinate worldwide regulation.
The new coordinated effort would be intended "not just to point out weaknesses, but to insure that these weaknesses are addressed and to identify systemic risks to the global financial structure," Brown said.
Strauss-Kahn said France had come to the meetings with 12 points it wanted the international institutions to consider, ranging from requiring more disclosure by commercial banks and hedge funds of their international business to creating a decision-making body within the IMF with real political authority.
"Most of the ideas" are now under consideration, Strauss-Kahn said, "so we think that what we did was useful."