Policy Documentation Center

Csete, Joanne

English

From the Mountaintops: What the World Can Learn from Drug Policy Change in Switzerland

 
August 2010 1 
BELARUSIAN MONTHLY 
ECONOMIC REVIEW 
• A. Lukashenka visited CSTO summit. 
• The growth of investments strengthened. 
• Belarus issued sovereign Eurobonds. 
• The growth of base money accelerated. 
Politics: A. Lukashenka visited CSTO summit 
In July, Syrian President B. Assad visited Belarus. He and 
President Lukashenka signed a joint declaration, which envis-
ages that the parties are aimed at establishing a free trade 
zone and mutual promotion of goods and services on their 
national markets. Furthermore, they claimed about an inten-
tion to implement a number of joint investment projects in 
the near future. However, the promotion of Belarusian eco-
nomic interests in the relationships with emerging countries is 
unlikely to compensate the deterioration of the external envi-
ronment due to the political tensions with Russia. The latter 
tendency did not change in August during the summit of the 
Collective Security Treaty Organization (CSTO). Notwithstand-
ing the traditions of such summits, there were no bilateral 
meetings of A. Lukashenka with other Presidents of the coun-
tries – member of the CSTO. This means that there are still a 
number of problems in foreign politics that affect the eco-
nomic situation as well, especially taking into account a 
weakening intensity of contacts of the Belarusian authorities 
with the political quarters from the EU and the USA. 
Real sector: The growth of investments strengthened 
In the first half of 2010, real GDP grew by 6.6% yoy (6.4% yoy 
in Jan-May). The growth rate increased due to a substantial 
hike of growth in industry (from 7.7% yoy in Jan-May up to 
8.8% yoy in Jan-Jun). At the same time, agricultural growth 
weakened somehow (from 5.5% down to 4.3% yoy). 
Improvements in the macroeconomic dynamic were conse-
quent to the acceleration of the investments growth from the 
demand side view. In June, capital investments grew by 
14.4% yoy, which provided an increase of cumulative growth in 
the 1st half of 2010 up to 4.0% yoy (0.3% yoy in Jan-May). 
Banks loans were the source of investment finance, which con-
tributed mostly to the growth of investments. Among the 
branches of the economy the highest growth of investments 
was peculiar to public utilities (33.4% yoy), construction 
(31.2% yoy), and housing construction (21.8% yoy). However, 
the branches with the biggest share in the structure of invest-
ments – industry, agriculture, transport – still performed a 
downturn in investments. Hence, the lack of financial sources 
for investment projects in major branches keeps on to be a 
vital problem for the national economy. 
Structural trends Belarus made a debut issuance of the 
sovereign Eurobonds 
In July, Belarus made a debut issuance of the sovereign Euro-
bonds. It was made by two tranches with a total value of USD 
1 bn and a coupon rate of 8.75%. The first tranche of USD 
600 m was placed with a discount (at 99.011% from the par 
value). The second tranche (USD 400 m) was placed at 102% 
from the par value. Finally, for the first tranche the yield to ma-
turity amounted to 9%, while 8.251% for the second one. The 
moment for market entry may be treated as rather successful. 
First, Belarus waited until the sovereign spreads passed their 
peaks because of the global crises. Second, Belarus avoided a 
short-term hike of the rates in May-June at the background of 
the debt crisis in Europe. The funds received allow financing 
 
 
 
No. 08 (95) 
August 2010 
 
 
 
 
 
 
 
 
Population: 9.67 m 
Industry / GDP: 28.1% 
Agriculture / GDP: 8.4% 
Investment / GDP: 27.9% 
Export destination: Russia 32%, EU 44% 
Import origin: Russia 60%, EU 22% 
 
 
 
 
 
 
 
 
 
 
Real GDP growth 
4.7 5.0
6.8
11.4
9.2
9.9
8.2
10.1
0.2
5.8
0
1
2
3
4
5
6
7
8
9
10
11
12
00 01 02 03 04 05 06 07 08 09
% yoy
Source: National Statistical Committee. 
 
 
 
 
 
 
 
 
 
 
 
IPM Research Center 
 
German Economic Team 
in Belarus  
 
50Б Zakharova St., Minsk 220088, Belarus 
Tel./fax (+375 17) 210 0105 
E-mail: bmer@research.by 
Internet http://research.by/ 
 
 
© IPM Research Center, 2010 
 
Belarusian Monthly Economic Review №08 (95) 
 
 
 
August 2010 2 
a huge part of the fiscal deficit. Moreover, it will facilitate to the 
stabilization of the currency market and the replenishment of 
the reserve assets. Finally, it may provide a number of advan-
tages for the long-term growth, due to expanding the access of 
the Belarusian private companies to borrowings at the global 
capital market. However, there are a number of arguments 
against these borrowings at the current moment. The govern-
ment did not formulate the goals of these borrowings explicitly, 
which raises the anxiety that they will be used just for balanc-
ing the distortions in the economy consequent to its excessive 
stimulation. However, their might be no contribution to the so-
lution of the structural problems. Finally, a rather huge amount 
of the Eurobonds issuance is unlikely to be fully logical taking 
into account the refusal from a new program with IMF, while 
these funds would have been much cheaper for Belarus. 
Foreign trade: New trends in trade with Russia 
In Jan-May, the merchandise trade deficit amounted to USD 
2.7 bn, having dropped by 15.1% yoy. But in May, the deficit 
amounted to USD 702 m, having increased by 21.6% yoy. The 
growth rate of imports (18.5% yoy) was higher than those of 
exports (17.4%) in May, firstly since the beginning of the year. 
Exports to non-CIS countries reduced by 8.5% yoy, while im-
ports grew by 39.9% yoy, and the deficit amounted to USD 
229 m in May. The fall of exports was consequent to the de-
cline of oil products exports by 38.5% yoy (by 58.2% yoy in 
physical volume). High growth rates from non-CIS countries in 
May were mainly driven by the hike in the imports of cars and 
the beginning of the imports of oil from Venezuela. At the same 
time, the tendency of decreasing investment imports from non-
CIS countries maintained.  
In May, exports to Russia grew by 47.6% yoy, while imports by 
3.0% yoy, and the deficit declined by 26.2% yoy down to USD 
593 m. A similar dynamics takes place from the beginning of 
the year, hence, in Jan-May the deficit in trade with Russia re-
duced by 20.3% yoy down to USD 2.9 bn. In Jan-May, the de-
cline of imports was consequent to a drop of crude oil imports, 
while Belarus purchased it mainly within its duty-free quota. 
Despite high growth rates of exports to Russia, there are still a 
number of problems in this regard. For instance, there is a ten-
dency of growing accounts receivable for the goods supplied, 
including the overdue ones. In Jan-May, a debt of Russian 
companies to the Belarusian ones increased by 2.6 times yoy, 
and in May by 4.9 times yoy. This reflects that Belarusian pro-
ducers soften the terms of settlements trying to promote their 
goods at the Russian markets. 
Public finance: Budget deficit is growing 
In May, the abolishment of the export oil duties began to affect 
the cumulative dynamics of revenues from the external eco-
nomic activity, which declined by 0.5% of GDP. Further, there 
was a loss in consolidated revenues due to the abolishment of 
the agricultural levy and local sales tax of 1.7% of GDP. It was 
partially compensated by the growth in VAT revenues (by 1.1% 
of GDP), and in the revenues from income and profit taxes (by 
0.2% of GDP). Finally, tax revenues dropped by 0.8% of GDP in 
comparison to Jan-May 2009 and amounted to 30.6% of GDP. 
As for the non-tax revenues, their dynamics was even more 
adverse: they dropped by 1.1% of GDP down to 2.7% of GDP. 
Among the main items of the consolidated expenditures, only 
those for the national economy (due to abolishment of the sub-
sidies to the oil traders) performed a downturn (by 0.2% of 
GDP), while other were almost constant in respect to GDP. 
Hence, consolidated expenditures were close to the level of the 
previous year. A consolidated deficit amounted to 2.8% of GDP, 
 
GDP and Industrial Output 
-6
-4
-2
0
2
4
6
8
10
Ja
n
.0
9
Fe
b.
0
9
M
ar
.0
9
A
p
r.
0
9
M
a
y.
0
9
Ju
n
.0
9
A
u
g
.0
9
S
e
p.
0
9
O
ct
.0
9
N
ov
.0
9
D
ec
.0
9
Ja
n.
1
0
Fe
b
.1
0
M
ar
.1
0
A
p
r.
1
0
M
ay
.1
0
Ju
n
.1
0
real GDP growth
real industrial output growth
% yoy cum.
Source: National Statistical Committee. 
 
 
 
 
 
 
Contribution of Financial Sources 
into the Growth of Capital Investments 
Growth 
2010 1H 
% 
contri-
bution 
Capital investments, includ-
ing at the expense of: 
4.0 4.0 
Consolidated budget -4.4 -0.9 
Own funds of the firms -5.0 -2.0 
Borrowed funds from other 
firms 
-45.6 -0.5 
Foreign sources(without banks 
loans) 
-21.8 -0.3 
Banks loans, including 20.6 5.4 
Foreign banks loans 24.1 0.9 
Households’ funds 9.2 0.8 
Non-budget funds -8.9 0.0 
Other sources 40.8 1.5 
Note. Contribution to growth in percentage points. 
Other sources include structural changes. 
Source: National Statistical Committee. 
 
 
 
 
 
 
Contribution of Branches of the Economy 
into the Growth of Capital Investments 
Note. Contribution to growth in percentage points. 
Other sources include structural changes. 
Source: National Statistical Committee. 
Growth 
2010 1H 
% 
contri-
bution 
Capital investments,  
including in: 
4.0 4.0 
Industry -13.4 -3.6 
Agriculture -4.9 -0.8 
Transport -1.8 -0.1 
Communications 10.4 0.3 
Construction 31.2 0.9 
Trade and catering 23.6 0.9 
Housing construction 21.8 4.8 
Public utilities 33.4 1.8 
Healthcare and social services -0.6 0.0 
Education 14.7 0.2 
Culture and art -25.2 -0.3 
Finance, crediting, insurance 
and pension provisioning 
-9.5 -0.1 
Other 3.3 0.1 
Belarusian Monthly Economic Review №08 (95) 
 
 
 
August 2010 3 
which is considerably more than the initially planned level. In 
this situation, the Ministry of Finance raised their projection of 
the Republican budget deficit from 1.5 up to 2.3% of GDP, ex-
plaining it by increasing expenditures. 
Monetary policy: The growth of base money accelerated 
In June, NBB kept on active provision of liquidity to commercial 
banks and its claims on them grew by 9.2% mom (BYR 
1.3 trn). Net foreign assets of the monetary authorities 
dropped by 2.6% mom (USD 137 m). Finally, base money 
grew by 9.5% mom in May, while in annual terms it strength-
ened up to 95.2% yoy (78.8% yoy in May), It should be em-
phasized, that in June and May the value of net foreign assets 
was likely to have been stabilized by the banks’ funds in for-
eign currency that were placed at the NBB as excessive re-
serves (USD 654 m in May and USD 187 m in June). This leads 
to an artificially high level of the base money, which does not 
fully reflect the situation in the monetary sphere in this case. 
The stimulation of the economic activity by the NBB resulted in 
further reduction of interest rates at all segments of the finan-
cial market. Furthermore, it determined maintenance of high 
growth rate of the outstanding loans (31.5% yoy in June, 
32.2% yoy in May). Interest rates on the households’ deposits 
in national currency were reducing less than on the other seg-
ments of the market. Through this and due to the acceleration 
of incomes, the growth rate of ruble households’ time deposits 
increased most severly (from 33.9% yoy in May up to 
48.7% yoy in June). Cash in circulation grew by 6.2% mom in 
June, while in annual terms the growth rate strengthened up to 
28.3% yoy (20.9% yoy in May). Ruble money grew by 
6.2% mom, and broad money by 2.1% mom. In annual terms 
their growth rates amounted to 36.3% and 24.8% yoy corre-
spondingly (27.9% and 25.5% yoy in May). 
Consumer prices grew by 0.2% mom in June, and in annual 
terms inflation amounted to 6.9% (7.1% in May). During June-
July, Belarusian ruble devalues versus the NBB currency basket 
by 1.5%. The exchange rate to US dollar was 2974 USD/BYR 
by the end of July. 
Banking sector: Establishment of the Special Financial 
Agency postponed 
In July, the chairman of the NBB P. Prakapovich stated that a 
legislative base for the establishment of the Special Financial 
Agency (SFA) on government programs financing management 
was accomplished. The commitment on establishment of such 
an agency and freeing the state banks from the burden of state 
programs financing was taken by Belarus within the agree-
ments with the IMF. In August, a working meeting headed by 
the President took place. Instead of the expected discussion 
dealing with the technical details of the SFA establishment, 
during this meeting the participants returned to the discussion 
of the expediency of this measure itself. A. Lukashenka stated 
that the state banks should retain their role of active financial 
donors for the state programs. Finally, the meeting was fin-
ished by the President’s instruction to proceed with the fine-
tuning of the legislative base for the SFA. De-facto, this means 
that the final decision in regard to this issue has been frozen at 
least till the next year. In 2010, the authorities consider mac-
roeconomic targets as an obvious priority, while these targets 
are unlikely to be achieved without the direct control on the 
credit policy of the largest banks. In this situation, a number of 
distortions – a hindered access to the capital by the private 
sector, sharp fluctuations of the liquidity level in the banking 
system, an excessive credit risk exposure by banks – will be 
still urgent for the financial system of the country. 
 
Merchandise Trade 
500
1000
1500
2000
2500
3000
3500
Ja
n
.0
9
Fe
b
.0
9
M
a
r.
0
9
A
p
r.
0
9
M
a
y0
9
Ju
n
.0
9
Ju
l.
09
A
u
g
.0
9
S
ep
.0
9
O
ct
.0
9
N
o
v.
0
9
D
e
c.
0
9
Ja
n.
1
0
Fe
b
.1
0
M
a
r.
1
0
A
p
r.
1
0
M
a
y.
1
0
-1000
-800
-600
-400
-200
0
200
balance (right axis)
exports
imports
USD m
Source: National Statistical Committee. 
 
 
Consolidated Budget 
10
15
20
25
30
35
40
45
50
Ja
n.
09
Fe
b
.0
9
M
ar
.0
9
A
p
r.
0
9
M
a
y.
0
9
Ju
n
.0
9
Ju
l.
09
A
u
g
.0
9
S
ep
.0
9
O
ct
.0
9
N
ov
.0
9
D
ec
.0
9
Ja
n
.1
0
Fe
b.
1
0
M
a
r.
1
0
A
pr
.1
0
M
ay
.1
0
-20
-15
-10
-5
0
5
10
15
20
balance (right axis)
revenues
expenditures
% of GDP
 
Note. Since 2010 Social Security Fund is not included 
into the consolidated budget. Data for 2009 assessed 
basing on the quarterly data. 
Source: Calculations based on the National Statistical 
Committee data. 
 
 
Monetary Base and СPI 
-25
0
25
50
75
100
Ja
n
.0
9
Fe
b
.0
9
M
ar
.0
9
A
p
r.
0
9
M
a
y.
0
9
Ju
n
.0
9
Ju
l.
0
9
A
u
g
.0
9
S
e
p.
09
O
ct
.0
9
N
o
v.
09
D
e
c.
0
9
Ja
n.
10
Fe
b.
10
M
a
r.
1
0
A
p
r.
1
0
M
ay
.1
0
Ju
n
.1
0
3
6
9
12
15
18
CPI (right axis) monetary base
% yoy eop % yoy
 
Source: calculations based on the National Statistical 
Committee and the NBB data. 
 
 
Refinancing rate 
10
11
12
13
14
15
Ja
n
.0
9
Fe
b
.0
9
M
ar
.0
9
A
p
r.
0
9
M
ay
.0
9
Ju
n
.0
9
Ju
l.
0
9
A
u
g
.0
9
S
ep
.0
9
O
ct
.0
9
N
o
v.
0
9
D
ec
.0
9
Ja
n
.1
0
Fe
b
.1
0
M
ar
.1
0
A
p
r.
1
0
M
ay
.1
0
Ju
n
.1
0
-2
0
2
4
6
8
real (right axis) nominal
% per annum
Source: calculations based on National Statistical 
Committee and the NBB data. 
Belarusian Monthly Economic Review №08 (95) 
 
 
 
August 2010 4 
Economic Trends  Q3 08 Q4 08 Q1 09 Q2 09 Q3 09 Q4 09 Q1 10 Q2 10 
Apr. 
10 
May 
10 
Jun. 
10 
GDP growth % yoy 11.2 7.5 1.1 -0.4 -1.1 1.8 4.0 8.9 -- -- -- 
GDP growth % yoy cum. 10.7 10.0 1.1 0.3 -0.3 0.2 4.0 6.6 6.1 6.4 6.6 
Industrial Production % yoy cum. 13.1 10.8 -4.5 -3.6 -4.5 -2.8 5.9 8.8 6.1 7.7 8.8 
Agricultural Production % yoy cum. 6.9 8.9 6.3 6.6 2.4 1.3 5.3 4.3 5.4 5.5 4.3 
CPI % yoy eop 16.3 13.3 15.5 13.4 11.7 10.1 6.4 6.9 6.6 7.1 6.9 
PPI % yoy eop 18.5 14.2 21.4 15.4 10.0 11.3 9.4 12.6 10.7 12.2 12.6 
Merchandise export (USD)* % yoy 44.9 -11.6 -48.9 -47.7 -35.4 2.9 29.2 -- 30.3 17.4 -- 
Merchandise import (USD)* % yoy 53.1 -1.5 -31.7 -33.4 -37.2 -1.7 8.9 -- 24.4 18.5 -- 
Merchandise trade balance 
(NBB data) 
USD m cum. -3835 -6104 -1779 -3799 -4797 -6971 -1165 -3311 -1919 -2579 -3311 
Current account USD m cum. -3006 -5263 -1925 -3597 -4408 -6402 -1127 -- -- -- -- 
Current account % GDP cum -6.6 -8.7 -18.7 -17.1 -12.4 -13.1 9.8 -- -- -- -- 
International reserves USD m eop 4120 3061 3955 2650 3879 5653 6074 5525 6046 5778 5525 
Monetary base % yoy eop 48 12 -14.2 -21.5 -15.0 -11.3 14.0 95.2 39.0 79 95.2 
Lending rate** % p.a. aop 11 14 17 17 17 17 17 12.9 14.4 13.6 12.9 
Exchange rate 
(official) 
USD aop 2114 2147 2772 2809 2821 2768 2907 2991 2970 2988 3014 
Exchange rate 
(official) 
EUR aop 3183 2827 3614 3822 4032 4093 4028 3810 3986 3766 3683 
* Growth rates in value terms (source: Ministry of Statistics and Analysis). 
** Nominal rate of commercial banks for new loans for legal entities in national currency. 
Sources: Ministry of Statistics and Analysis, NBB. 
 
Key Economic Indicators 2003 2004 2005 2006 2007 2008 2009 
Nominal GDP* BYR trn 36.565 49.991 65.067 79.231 97.165 128.828 136.789 
Nominal GDP** USD bn 17.7 23.1 30.2 36.9 45.2 60.3 49.0 
GDP Growth % yoy 7.0 11.4 9.4 9.9 8.6 10.0 0.2 
Industrial production % yoy 7.1 15.9 10.5 11.3 8.5 10.8 -2.8 
Agricultural production % yoy 6.6 12.6 1.7 6.1 4.1 8.9 1.3 
CPI % yoy aop 28.4 18.1 10.3 7.0 8.4 14.8 13.0 
CPI % yoy eop 25.4 14.4 8.0 6.6 12.1 13.3 10.1 
PPI % yoy aop 37.5 24.1 12.1 8.3 16.2 14.7 14.5 
PPI % yoy eop 28.1 18.8 10.0 8.5 17.1 16.4 11.3 
Exports (gs, USD) % yoy 24.4 35.7 15.8 21.8 24.3 35.5 -33.0 
Imports (gs, USD) % yoy 25.1 40.3 3.0 33.0 27.9 37.6 -27.1 
Current account USD m –424 –1206 510 –1512 -2944 -5263 -6402 
Current account % GDP –2.4 –5.2 1.7 –4.1 -6.6 -8.7 -13.1 
FDI (net) USD m 170 163 303 351 1770 2143 2149 
International reserves USD m 474 770 1297 1383 4182 3467 5653 
Fiscal balance % GDP –1.6 0.0 –0.6 2.2 0.6 0.9 -0.7 
Domestic public debt % GDP eop 5.5 5.7 5.8 6.5 6.4 6.7 5.8 
External debt (total) % GDP eop 23.7 21.4 17.9 18.6 28.4 24.6 45.0 
Monetary base % yoy eop 50 42 74 20 38 12 -11 
Exchange rate (official)* USD aop 2075 2160 2154 2145 2146 2136 2793 
Exchange rate (official)* USD eop 2156 2170 2152 2140 2150 2200 2863 
Exchange rate (official)* EUR aop 2353 2684 2681 2692 2937 3135 3885 
Exchange rate (official)* EUR eop 2695 2956 2550 2817 3167 3077 4106 
Sources: National Statistical Committee, Ministry of Finance, NBB, IPM Research Center. 
 
Notes: 
aop average of period gs goods and services 
avg average trn trillion 
bn Billion NBB National Bank of Belarus 
cum. cumulative p.a. per annum 
eop end of period yoy year-on-year 
m million ytd year-to-date 
 


Belarusian Monthly Economic Review No. 08 (95) August 2010

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Third Country Rules for Alternative Investments: Passport flexibility comes at a price

Emerson, Michael

Wouters, Jan

  
Michael Emerson is Senior Associate Research Fellow at the Centre for European Policy Studies (CEPS) 
and Jan Wouters is Professor of International Law and International Organizations and Director of the 
Leuven Centre for Global Governance Studies (GGS) at Leuven University. The present note has been 
prepared in the context of a comprehensive study underway on the EU as actor in the multilateral 
system, to which alongside CEPS and GGS, the European Policy Centre (EPC) and Belgium’s Royal 
Institute for International Relations (Egmont) are also contributing. An abbreviated version of the 
present commentary was published in European Voice on 23 September 2010.  
CEPS Commentaries offer concise, policy-oriented insights into topical issues in European affairs. The 
views expressed are attributable only to the authors in a personal capacity and not to any institution 
with which they are associated. 
Available for free downloading from the CEPS website (http://www.ceps.eu) ? © CEPS 2010 
Place du Congrès 1 ▪ B-1000 Brussels ▪ Tel: (32.2) 229.39.11 ▪ Fax: (32.2) 219.41.51 ▪ http://www.ceps.eu 
The EU’s Diplomatic Debacle at the UN 
What else and what next? 
Michael Emerson and Jan Wouters 
1 October 2010 
he EU hoped to get the new diplomatic season off to a flying start by proposing a resolution 
(reproduced in Annex 1) to the United Nations General Assembly (UNGA) that would give the EU, 
post-Lisbon, enhanced participation rights and transform its status from that of a multitude of 
ordinary observers to an observer with virtually full participation rights, able to make pronouncements and 
proposals and so on. This would have permitted Herman Van Rompuy to address the Assembly soon in a 
manner equal to his function as President of the European Council. The initiative failed when tabled on 
September 12-13th, and in so doing raises a much broader and more fundamental issue for the EU’s foreign 
policy.  
The EU had hoped to get its resolution accepted by consensus. Instead a counter-resolution was presented for 
the EU’s resolution to be deferred and not put to the vote. The counter-resolution passed by 76 votes to 71, 
with 26 abstentions.1 Since the 76 included most of the Africa, Caribbean and Pacific beneficiaries of EU 
aid, something seems to have gone badly wrong. Only the Europeans (with the exception of Russia) voted en 
masse for the EU position. In any event the initiative is still grounded. The objections seem mainly to have 
been on matters of diplomatic process rather than substance, so the chances are that it may pass in due course 
when tabled again after more thorough consultations. Still, this is at the very least a warning to the EU that it 
cannot take broad majority support in the UN for granted.  
The UNGA set-back is just the tip of the iceberg, however. Also ongoing are negotiations to revise the 
governance of the IMF’s Executive Board, with pressure from the BRICs (Brazil, Russia, India and China) 
and developing countries to be more strongly represented in seats and votes, and with Europe presumed to 
make the compensating concessions. The EU or eurozone should surely be strongly represented at the IMF, 
but with a single seat, whereas today the European Central Bank has no more than partial observer status. 
                                                     
1 Interestingly, from the voting record on the resolution, no very strict voting patterns are discernable among the 
members of the G-77 developing countries (72 votes in favour, 20 against, and 20 abstentions), nor among the members 
of Non-Aligned Movement (59 votes in favour, 15 against, and 16 abstentions), nor among the members of the 
Organisation of the Islamic Conference (30 votes in favour, 9 against, and 7 abstentions). See Annex 2 for more details. 
T 
2 | Emerson & Wouters 
The US has proposed that the Board slim down from 24 to 20 seats, with the smaller EU member states in 
the firing line. With the European side not yet responding, the US now plays hard ball with the Europeans, 
since in the absence of agreement IMF rules of procedure will have the Executive Board revert automatically 
to 20 seats in any case. But the further turn of the screw here is that these rules require that the countries with 
the smallest number of votes on the Board are ejected, which would mean Brazil, India, Argentina and a 
constituency of francophone African states.  
The European problems go further still. According to the Articles of Agreement of the IMF, the five top 
Board seats go the countries with the highest quota, which at present are the US (19.74%), Japan (6.01%), 
Germany (5.87%), France (4.85%) and the UK (also 4.85%), with China still lagging behind in sixth place 
(3.65%). China will obviously soon accede to a place among the top five, with France or the UK having to 
make room. At this point the logical solution would be for the eurozone to take over the seats of Germany 
and France, as well as of the other eurozone member states in other constituencies, which would trigger a 
useful reform of the constituency system more generally.  
The time horizon for this cannot be too far away, so Germany, France with the EU and eurozone should take 
a lead now, rather than lose control of the agenda amid mounting anti-European pressures from the rest of 
the world. For example, on September 24th the Brazilian executive director published an article in the 
Financial Times blaming Europe for blocking reform of the IMF.2 At the World Bank it is only a slightly 
different story. There were some minor changes in voting weights made in 2010, but the constituencies are 
not changed, and the EU, as the world’s leading donor bloc, is not even present as observer in its Executive 
Board.   
There is still more cause for concern. The EU is party to a great many (no less than 249) multilateral treaties, 
but in most cases this is alongside the presence of the EU member states which are also parties, because the 
treaty touches areas of ‘shared competence’. How must the EU be represented in meetings concerning these 
treaties, after Lisbon? And how must it be represented when new negotiations for multilateral agreements 
touching on shared competences are conducted? The protracted internal discussions to ensure EU 
representation at the Stockholm meeting in June of this year about a new multilateral treaty on phasing out 
the use of mercury has seen a stand-off between the Commission and Council, which apparently will have to 
be fought out before the European Court of Justice. The impasse led to the rather stunning statement by the 
Commission in Stockholm that due to the absence of “formal authorisation to negotiate”, the EU and its 
member states would be unable to engage in negotiations. Meanwhile there is no sign that the lessons of the 
disastrous Copenhagen climate change summit of December 2009 have been digested. The next summit in 
this series, in Cancun this December, promises to see the same confusion of EU and member state presences 
and representation. 
Some might suppose that these legal-institutional questions could be left to evolve gradually over years and 
decades. Indeed, the millstones of international and European law grind surely but slowly. But this attitude is 
no longer feasible. World events are now confronting the EU urgently with the need to face up to new 
realities, or – as our American friends say with blunt clarity – slide into irrelevance in global affairs. 
The three examples – Copenhagen, UNGA and IMF – illustrate perfectly the triple tensions at play. The EU 
strives for higher status in world affairs, corresponding to the development of EU competences. The BRICs 
want more power, and complain about EU member state overrepresentation. The EU member states are 
under pressure to cede seats and votes, but are unwilling to cede their national seats to a single EU seat. 
Meanwhile, the US bypasses the EU and the BRICS and developing countries block the EU. The result is 
impasse, with a sizeable portion of the blame aimed at the EU and its member states together. This is not 
how it was meant to be: rather, the EU was to be the world’s best friend of enlightened multilateralism. The 
imbroglio is going to get worse unless the EU does two things. 
First, and fundamentally, it has to engage in a comprehensive and strategic review of how it should position 
itself in the multilateral system, notably as regards the distribution of roles between the EU itself and the 
member states. Up to now, it has been going along with the EU adding a seat to the world’s top tables, with 
increasing hybrid presences, some of which work perfectly well (e.g. at the WTO). But this approach is 
running out of credit, as the BRICs and developing countries push for reduced European representation, and 
without this, refuse additional EU presence. This is a highly complex legal and political task. A basic review 
should be set into motion now by the European Council at a next summit meeting of the type just held on 
                                                     
2 P. Noguira Batista, “Europe must make way for a modern IMF”, Financial Times, 24 September 2010. 
The EU’s Diplomatic Debacle at the UN | 3 
September 16th, and undertaken by the new External Action Service and Commission. The EU and its 
member states will need to work out a proper strategic plan, and provide for trade-offs between them (more 
EU and fewer member states) and between the various international fora (gain ground here, cede seats there).  
Second, and as and when the EU has worked out its strategy, it must do its diplomatic homework better. 
More communication and lobbying by the EU and its member states, working together with the world’s 192 
UN member states as well as the G20, is indispensable. It is too costly for the reputation and credibility of 
the EU to go to the UNGA and be surprised when its proposal, intended for consensus, is shot down by the 
very states that are its main aid beneficiaries. This is particularly so because the EU is actually in a position 
to build consensus through measured diplomatic effort. After all, the debacle at the UNGA came just days 
after the EU scored a major diplomatic success in that very same forum without its own vote, when the 
UNGA passed the resolution the EU had worked out with Serbia on Kosovo. 
4 | Emerson & Wouters 
Annex 1. Draft Resolution A/64/L67 of the UN General Assembly – 
Participation of the European Union in the work of the United Nations 
 
The General Assembly,  
Bearing in mind the role and authority of the General Assembly as a principal organ of the United Nations and the 
importance of its effectiveness and efficiency in fulfilling its functions under the UN Charter, 
Recognizing, further, that the current interdependent international environment requires the strengthening of the 
multilateral system in accordance with the purposes and principles of the United Nations and then principles of 
international law,  
Acknowledging that, when an organisation for regional integration develops common external policies and 
establishes permanent structures for their conduct and representation, the General Assembly may benefit from the 
effective participation in its deliberations of that organisation’s external representatives speaking on behalf of the 
organisation and its member states, without prejudice to the ability of each organisation to define the modalities of 
its external representation,  
Recalling the long standing relations between the European Union and the United Nations, 
Noting the entry into force on 1 December 2009 of the Treaty of Lisbon, through which the European Union has 
made changes to its institutional system, in particular as regards its external representation, 
Noting that in the Treaty of Lisbon, the European Union reaffirms inter alia its commitment to the purposes and 
principles of the United Nations Charter and to the promotion of multilateral solutions to common problems, in 
particular in the framework of the United Nations,     
Noting also that under the Treaty of Lisbon, the Member States of the European Union have entrusted the external 
representation of the European Union, with regard to the exercise of the competences of the European Union 
provided for by the Treaty of Lisbon, to the following institutional representatives: the President of the European 
Council; the High Representative of the European Union for Foreign Affairs and Security Policy; and the 
European Commission and European Union Delegations, 
Noting that the representatives of the European Union referred to above have assumed the role, previously 
performed by the representatives of the Member State holding the rotating Presidency of the Council of the 
European Union, of acting on behalf of the European Union at the UN in the exercise of the competences 
conferred by its member states, 
Recalling that, by virtue of the Lisbon Treaty, the European Union has replaced the European Community, as 
notified to the Secretary-General of the United Nations by a letter dated 30 November 2009 
Noting that the European Union is a party to many instruments concluded under the auspices of the United 
Nations, is a member of several United Nations specialised agencies and is a full participant in several United 
Nations bodies, 
Noting that the European Union retains observer status in the General Assembly 
1. Decides that the representatives of the European Union for the purpose of participating effectively in the 
sessions and work of the General Assembly, including in the general debate, and its committees and working 
groups, in international meetings and conferences convened under the auspices of the Assembly, as well as in 
United Nations conferences, and in order to present positions of the European Union, shall be invited to speak in a 
timely manner, similar to the established practice for representatives of major groups, without prejudice to the 
intergovernmental nature of the United Nations, shall be permitted to circulate documents, to make proposals and 
submit amendments, the right to raise points of order, but not to challenge decisions of the presiding officer, and 
to exercise the right of reply, and be afforded seating arrangements which are adequate for the exercise of the 
aforementioned actions; the European Union shall not have the right to vote or to put forward candidates in the 
General Assembly; 
2. Decides that when a regional organisation representing Member States has reached a level of integration that 
enables that organisation to speak with one voice, the General assembly my adopt modalities, in the spirit of this 
resolution, for the participation in its deliberations of that organisation’s external representatives speaking on 
behalf of the organisation and its Member States;  
3. Requests the Secretary-General to take any measures necessary to ensure the implementation of this decision. 
[Note: this includes the amendments made by the European Union on 13 September 2010 to its initial text].  
The EU’s Diplomatic Debacle at the UN | 5 
Annex 2. Votes on motion to adjourn the debate of participation of the EU 
in the UN General Assembly, 14 September 2010 
Regions Yes No Abstain 
Africa Algeria            Eritrea         Somalia       
Angola            Ethiopia       South Africa 
Benin              Ghana          Sudan 
Botswana        Kenya          Togo 
Burkina Faso  Lesotho        Uganda 
Chad               Libya           Tanzania 
Comoros         Mali             Zambia  
Congo             Mauritania   Zimbabwe 
Côte D’Ivoire  Mozambique 
Djibouti          Namibia 
Equatorial-      Nigeria 
Guinea            Seychelles 
Liberia        Morocco 
Malawi       Tunisia 
Burundi                Gambia 
Cameroon             Rwanda 
Central African-   Senegal 
Republic 
Democratic- 
Republic of Congo 
Americas Antigua          Ecuador       St Knitts-Levis 
Barbuda         El Salvador  St Lucia 
Barbados        Grenada      St Vincent-Gren 
Belize            Guyana        Suriname 
Bolivia           Haiti           Trinidad-Tobago 
Cuba              Jamaica        Venezuela 
Dominica      Nicaragua 
Chile          Panama 
Colombia   Paraguay 
Costa Rica Peru 
Guatemala United States 
Mexico      Uruguay 
Argentina    Dominican-    
Brazil           Rep. 
Canada        Honduras 
Asia China            Philippines 
DPR Korea   Singapore 
India             Thailand 
Indonesia      Turkmenistan 
Malaysia 
Afghanistan   Rep. of Korea 
Bangladesh   Timór Leste 
Cambodia     Uzbekistan 
Kazakhstan 
Armenia      Pakistan 
Bhutan        Sri Lanka    
Brunei Darussalam 
Mongolia 
Nepal 
Europe Russian Federation Albania    Germany      Norway  United- 
Andorra   Greece          Poland    Kingdom 
Austria     Hungary       Portugal 
Belgium   Iceland         Rep. of- 
Bosnia and Herz.          Moldova 
Bulgaria   Ireland          Romania 
Croatia     Italy              San Marino 
Cyprus     Latvia            Serbia 
Czech Rep. Liechtenstein Slovakia 
Denmark  Lithuania       Slovenia   
Estonia     Luxembourg  Spain 
Finland     Malta             Sweden  
FYROM  Monaco          Switzerland 
France      Montenegro   Turkey 
Georgia    Netherlands   Ukraine 
Belarus 
Middle 
East 
Bahrain      Qatar 
Iran            Saudi Arabia 
Iraq            Syria 
Kuwait       Yemen 
Lebanon 
Israel       Jordan Oman            UA Emirates 
Oceania Fiji            Nauru 
Marshall-  Palau 
Islands      Solomon Islands 
Micronesia 
Papua N-  Tuvalu 
Guinea 
Tonga 
 
Australia        Samoa 
New Zealand 
Total 76 71 26 
 


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