German vs. German: a strange new personal war has broken out between IMF head Horst Kohler and German Finance Minister Hans Eichel. But beneath the surface, even larger issues--including perceived American heavy-handedness--are at stake.

• Author: Engelen, Klaus C.
• Position: Globalization

Observing the start of Horst Kohler's tenure as new managing director of the International Monetary Fund (IMF) about three years ago (The International Economy, September/October 2000), we asked a pertinent question: Did the United States--by successfully blocking former World Bank executive Caio KochWeser, the first-ever German candidate to head the IMF--eventually get what it deserved? Namely, a strong, independent-minded, highly qualified, new managing director of the Fund from Germany, who will probably stand his ground against even the almighty U.S. Treasury? When taking over the helm of the IMF, Kohler was living up to the qualifications that former U.S. Treasury Secretary Larry Summers listed as benchmark: "Stature, expertise, ability to command global support, and commitment to a process of ongoing reform." From what we have learned recently, things have been turned upside down in such a way that we should rephrase that three-year-old question: Did Germany get an IMF managing director it never expected? Is the new IMF head one who hits hard at his home country but wouldn't dare test America's new assertiveness? Is he an individual who had to table--from one day to the other--the major IMF project of the last two years, the Sovereign Debt Restructuring Mechanism (SDRM), because new U.S. Treasury Secretary John Snow wants to appease the private sector?

In any event, it doesn't come as a surprise that relations these days are not good between Horst Kohler and the top officials of the battered German government of Gerhard Schroder. When G8 finance ministers met ahead of the Evian Economic Summit in Deauville, France, on May 16-17, 2003, official German anger at the most visible German at the top of a powerful multilateral institution broke out into the open. When Kohler presented the findings of the recent deflation study of IMF economists, he hit especially hard at the policy failures and deflation risks in Germany, Europe's largest economy. In particular, he blasted Berlin's inability to tackle the structural rigidities in the German economy and its labor markets.

Schroder's finance minister Hans Eichel reacted angrily in the round of finance ministers. Eichel accused Kohler and the IMF of being too harsh on Germany and the Eurozone and too soft on the risks and policy failures of the United States.

Immediately after the meeting, a visibly irritated Kohler took Eichel to task, asserting his independence from any member government in the IMF surveillance process. He defended the harsh criticism of Germany and the Eurozone and rejected the notion that the IMF was not also pointing out the deflation risks and policy failures in the U.S. economy. As managing director of the IMF, argued Kohler, he had to see things from the perspective of the whole world.

This episode says a lot about the strains and stresses in today's high policy circles.

When the press asked the Berlin ministry to comment on reports of an open rift between Kohler and Eichel, a spokesman stated that, as a matter of principle, the ministry "would not comment on G7 finance ministers sessions," but "that in the German government there are no reservations toward Horst Kohler," and "that the cooperation with the IMF is functioning very well as in the past." Looking back at the relentless broadsides against Germany, originating from the IMF and its German "MD," the ministry statement was not without a cynical touch. At the IMF headquarters in Washington, Kohler opted for openness, confirming...