Policy Brief n.34 - The IMF and Europe under Trump II

 Executive Summary

The IMF provides a collective good in offering low-interest loans to countries in high debt distress, overseeing global financial stability, and providing economic surveillance and reporting for public and private actors to make well-informed market decisions.  

Not without its flaws and poor decisions in the past, its imperfect structure is the result of cooperative and multilateral global governance and a reflection of power balances and governance priorities in the postwar era.  

The United States, Japan, and Europe are the primary beneficiaries of its current governance structure. A structure that offers impetus and opportunity for Europe to help scale up lending which is beneficial to international monetary stability and its own development goals.  

The IMF is also a vehicle for incentivizing private investment in areas that improve national and global welfare—like climate financing—by providing governments in debt distress with the fiscal space to undertake necessary long-term infrastructure investments and macroeconomic planning that can make such private investments more fruitful.  

Between these two objectives—the primary one of global financial stability and the secondary one of scaling up public and private investments—Europe’s role in the IMF under Trump II becomes one of protecting the institution as a collective good and driving investments in the instruments that make it a unique hallmark of international financial institutions (IFIs) worldwide.  

The report considers how Europe – conceptualized as the EU, UK, Norway, and Switzerland – can advocate for better policy on the IMF Executive Board in order to steer the Resilience and Sustainability Trust (RST), Poverty Reduction and Growth Trust (PRGT), and economic surveillance and reporting in a positive direction.  

We consider in depth how Europe can strategically engage with the IMF, either with a) a US that stays in the IMF but is less engaged, b) a US that leaves the IMF, or c) a US that stays and is openly hostile towards its aims and objectives.  

Our analysis suggests that European states should adopt positions on the IMF Executive Board which encourage an expanded RST, further support for PRGT at zero interest rates, and demands for greater macroeconomic data reporting from China.  

We conclude with main takeaways and the chief outcome that while US engagement is paramount to the continued and long-term success of the IMF, Europe can – with coordinated action within IFIs – guide international lending in a way that retains the soul of the IMF’s original mission: international monetary cooperation. A principle that cannot be sought after with an isolationist approach by the lead member state.