Global finance and its institutions need a facelift

In the run-up to the November G20 summit in Cannes, Parliament on Tuesday adopted its contribution to reviewing global economic governance by a large majority. The resolution calls for an overhaul of the IMF, primarily to make it a more political body, a halt to political meddling with exchange rates, and global rules to separate speculative banking activities from traditional retail ones. The G20 is also called upon to agree on the elements for a global financial transaction tax.

The resolution, drafted by Gunnar Hokmark (EPP, SV) also calls for stronger global financial regulation and supervision to close loopholes, and highlights the need to address existing imbalances between world economies so as to avoid further turbulence, something the G20 has so far struggled hard to do. 

A political IMF

The resolution calls on the IMF to fulfil its growing role by becoming more legitimate, transparent and accountable. To this end, the resolution proposes that its managing director be elected through an "open and merit based" process and also calls for a fairer distribution of voting rights.  Finally the text calls for a widening of the IMF's mandate, primarily to monitor single economies of systemic importance and not only cross-country surveillance.

More broadly, the resolution calls for better democratic accountability to be developed for the IMF, World Bank and the "G" formations, particularly the G20 and for all these financial institutions to coordinate their work better.

A financial sector of service to the economy

Among the various elements proposed for making the global financial sector safer and better controlled, the resolution advocates two crucial items.  Firstly, it calls for the G20 to conclude discussions "without further ado" on the basic components of a global financial transaction tax. This call was backed by a large majority (594 in favour, 62 against, 3 abstentions).

Secondly, the resolution calls on the Basel Committee of banking regulators to propose measures to ring-fence the retail banking activities of systemically important banks and require them to be capitalised on a standalone basis. This proposal mirrors that made in September by the Vickers report on the reform of the UK banking sector.

Procedure: Non-legislative resolution