Mr K?hler Comes Back from Washington

Germany’s center-right and liberal parties have finally agreed on a candidate for the country’s largely, but not completely, symbolic presidency. Because these parties have been winning elections at the state level over the last few years, they have a working majority in the body that elects the president, even though they are actually in opposition.

(The selection itself has been a bit of an opera bouffe. Bild‘s lead yesterday showed various Muppets and cartoon characters over the headline, “Even more candidates!” The serious press had similar, if less colorful, opinions.)

The man the parties have chosen is Horst K?hler, currently head of the IMF. Apparently Washington doesn’t pay much attention to contemporary German comic opera, and the leading local paper called the appointment a surprise:

The International Monetary Fund began the contentious process of choosing a new leader after a surprise announcement yesterday by its managing director, Horst Koehler, that he was resigning to run for president of Germany.

The reporter has been around long enough to remember that K?hler’s selection was the result of a pretty botched process in 1999.

Koehler’s selection as managing director four years ago came after a power struggle among rich countries that was widely deplored as epitomizing the arbitrary nature of the process. Following the announcement in November 1999 by IMF Managing Director Michel Camdessus that he would retire, the German government made it clear that the time had come for a German to take the helm after two Frenchmen had held the job. Berlin’s first nominee, Caio Koch-Weser, emerged as Europe’s choice, but when the U.S. government blocked his selection by the IMF board, German officials indignantly insisted on Koehler, then the head of the European Bank for Reconstruction and Development. Rather than risk a breach with the Germans, other nations acquiesced.

The Schroeder government was new at the time and was less than subtle in pushing through a German as IMF head. Much was made at the time of American arrogance (pre-GWB, even) at blocking a European nominee. This was wrong on two counts: first, technically, as the largest shareholders and contributors, the Americans are well within their rights to block anyone they jolly well feel like blocking. Second, and more importantly, the Schroeder government had deliberately ignored American signals that said “Some German, ok, but this particular person, definitely not.”

The Schroeder government insisted on pushing their first nominee, despite clear misgivings from the US side and lukewarm support from fellow EU countries. They bet that the Clinton administration was bluffing in its opposition, and that it would not want the confrontation an open veto would bring. They were wrong.

Anyway, all’s well that ends well in comic opera, and K?hler seems to have rendered yeoman service at the IMF.

Two things about the succession will be interesting. First, the intra-European jockeying for the IMF job. The Post story names potential candidates from Britain, France, Germany, Spain and Italy. Big European countries want a big European position. The Post also cites speculation about Leszek Balcerowicz, perennial Polish minister of finance. This would be a very interesting pick, someone from a country more used to receiving IMF funds — and directives — than contributing them.

(An interesting dark horse candidate could be Sirkka Hamalainen, former head of the Bank of Finland and former member of the ECB executive board. If the big countries can’t agree among themselves, the way might open for a respected compromise candidate from a small country. On the other hand, at 65, she might not want to take on the arduous duties of heading the IMF.)

The second interesting thing about the succession is that the US-EU duopoly is being challenged. Some of the developing countries — or emerging markets, depending on your point of view — who have been coordinating their actions in the WTO negotiations, are also objecting to the cozy system for dividing up IMF and World Bank leadership positions. Don’t bet on a change this time, but the cracks in the system are starting to show.