Europe’s ATM

It’s ironic that just a week after Nicolas Sarkozy proposes a coordinated European economic governance that emphasizes European sovereign wealth funds designed to protect European companies in strategic industries from “cash-flush foreign investors,” Gordon Brown heads off to the Middle East to try to convince some of those cash-flush foreign investors to sink some of their cash into the IMF’s bailout fund, dangerously undercapitalized at $250 billion. (Question: Will the IMF impose the same kind of Draconian restrictions it applied to Third World economies when it comes time to bail out industrialized Western nations?)

Meanwhile, Robert Manning at the New Atlanticist points out that, despite being completely ignored in the States, Europe and especially Asia got a head start on hammering out the new rules of the global financial order at the Asia-Europe Summitt held in Beijing last week:

They recognized the need to “improve the supervision and regulation ofall financial actors, in particular their accountability.” In plainEnglish: bye-bye derivatives, hedge funds and the many arcane financialinstruments outside the purview of monitoring, surveillance and hellomore stringent regulation.

But even if the summit illustrates yet another way in which the center of gravity for global solutions has shifted away from Washington, the institutional reforms that everyone recognizes are necessary will nevertheless be hard to come by:

Emphasis was put on strengthening the role of the IMF, an institutionwhere China has the same voting weight as Belgium. That reality hintsat the limits of Asian-European unity on financial matters: much of anyreform of global institutions to bring them in accord with emergingrealities will boost Asia’s role, mainly at the expense of Europe.

Both Brown’s and Sarkozy’s approaches are attempts at humanizing global capital markets, Brown’s by appealing to capital’s best instincts, Sarkozy’s by defending against its worst. But Brown is essentially asking China and the oil states to conduct themselves as members of the global governance club. And membership, as the ad goes, has its privileges. The question is whether Europe and the West are willing to spread them around.