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Analysis
Controlled multilateralism

Controlled multilateralism

Link between China SDR move and Friday’s act of war

by David Marsh

Mon 16 Nov 2015

The perpetrators of Friday’s murderous attacks in Paris may have wished to drive a wedge through the international state community. In fact, one of the principal consequences of the massacre, as the weekend response of the Group of 20 leading economies in Turkey showed, will be rapprochement between the US, Russia, China and Europe.

In the financial sphere, Friday’s approval by the International Monetary Fund of the Chinese renminbi’s inclusion into the special drawing right marks a broadening and deepening of the multilateralism under which the Fund was established seven decades ago. Friday’s decision, expected to be backed by the IMF’s board on 30 November, represents the first time that a currency of a developing country becomes a de jure reserve asset – official recognition of a momentous shift in the world power balance.

Weekend talks on Syria between Barack Obama and Vladimir Putin at the G20 in Antalya underline how two countries divided by Moscow’s invasion of Crimea are sinking their differences in a joint fight against the Isis terrorist movement.

In a similar vein, expected US approval of the SDR change may herald American efforts to draw closer to Beijing in security and military issues, lowering emphasis on discord over cyberspace attacks or tension over Asian territorial claims.

The IMF’s ruling that the renminbi is ‘freely usable’ and thus can be included in the SDR from next October – despite the persistence of some Chinese capital controls – has geopolitical parallels. Lending weight to the IMF statement, capital flowed back into China last month for the first time since Beijing allowed the currency to fall in August as part of IMF-ordained efforts to integrate China more closely into the global economy.

Adjustment to global political realities may require departure from fully fledged ideals of western liberalism. International reaction to what President François Hollande correctly called an act of war portends deep-seated changes for Europe. International coordination may turn out to be synonymous with strengthening individual states and shoring up ‘strong leaders’ who may value security more than human rights.

The response east and west of the war zone of Syria and Iraq will significantly weaken the always-overstated concept of a ‘border-free’ Europe that has plainly contributed to establishment of militarily organised terrorist cells within the EU. The aftermath of Paris will require a radical shake-up of European immigration procedures, reinforcing nationalist hardliners whether in Berlin, Paris, Budapest or Ankara.

In Germany, where Chancellor Angela Merkel has come under fire for well-meaning but naïve statements extending an over-welcoming hand to immigrants, the centre-left coalition is likely to succumb to pressure for border controls. Finance Minister Wolfgang Schäuble has moved closer to an outright bid to dislodge Merkel, launching a thinly-veiled attack on her last week by saying: ‘You can trigger avalanches when a rather careless skier goes on to the slope...and moves a bit of snow.’

Turkey's President Recep Tayyip Erdogan, Hungarian Prime Minister Viktor Urban and Polish party chief Jaroslaw Kaczynski are all leaders likely to benefit from a hardening of nationalist sentiment in Europe. President Hollande has no choice but to move to the right to ward off a growing offensive from former President Nicolas Sarkozy and National Front chief Marine Le Pen. Hollande’s Socialist party faces a further setback in regional elections next month and the presidential poll in April-May 2017 where, on present showing, Le Pen will win the first round and lose the run-off vote to a right-wing mainstream candidate.

David Marsh is managing director of OMFIF.

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