EU ready to give up 2 IMF seats in rotation scheme

The European Union is ready to cede two of its seats on the board of the International Monetary Fund to emerging economies as part of a new power sharing scheme in international financial institutions, EU ministers agreed.

Germany, France and Britain have their own seats on the 24-member IMF board, while EU member states Belgium, the Netherlands, Spain, Italy and Denmark represent groups of countries, or constituencies.

Switzerland, although not part of the EU, also has a chair, giving the Europeans nine in total.

The United States, frustrated at Europe's refusal to share more IMF power with emerging economies, took unprecedented action last month to block plans that would have kept Europe's long-running dominance over the board, which could end in the board being cut to 20 seats.

"We agree to reduce advanced European representation by up to two, by offering rotation to emerging markets with advanced countries in their respective constituencies," EU finance ministers wrote in a proposal agreed on Friday.

IMF managing director Dominique Strauss-Kahn discussed IMF reform with the ministers on Thursday, ahead of the annual meetings of the IMF next week in Washington.

The current Europe-US domination of the Washington-based fund is a reflection of its post-World War Two setup but the order is now being challenged by the rise of China and other emerging economic powerhouses.

The IMF board is one of the global lender's main decision-making bodies. It has approved billions of dollars in emergency loans for countries hit by the global financial crisis and oversees the way the Fund is run.

The reform of the board seats would be linked to a quota shift of at least 5 percent to "dynamic emerging economies and developing countries" and a shift of at least 5 percent from the overrepresented to the underrepresented, the ministers said.

"The 2010 quota review will be completed in a fair way, so that all overrepresented countries contribute to the increase for underrepresented countries," the document said.

EU ministers also agreed that any members of a constituency whose voting quota is at least half that of the largest member in the constituency would have an opportunity to hold the position of the executive director on a rotating basis.

The EU also wants the International Monetary and Financial Committee (IMFC), the IMF's steering panel, to be given greater powers, including more ministerial engagement "through appropriate decision making", the agreement said.

EU ministers also want constituencies with more than 9 members to have two alternative executive directors, instead of the current one.

The reform would also end the long-standing informal deal that Europe gets to nominate the managing director of the IMF while the United States get to pick the head of the World Bank.

"The proposed compromise should be understood as a package and as providing a comprehensive and stable solution," the ministers wrote in the document.