Social Europe

politics, economy and employment & labour

  • Projects
    • Corporate Taxation in a Globalised Era
    • US Election 2020
    • The Transformation of Work
    • The Coronavirus Crisis and the Welfare State
    • Just Transition
    • Artificial intelligence, work and society
    • What is inequality?
    • Europe 2025
    • The Crisis Of Globalisation
  • Audiovisual
    • Audio Podcast
    • Video Podcasts
    • Social Europe Talk Videos
  • Publications
    • Books
    • Dossiers
    • Occasional Papers
    • Research Essays
    • Brexit Paper Series
  • Shop
  • Membership
  • Ads
  • Newsletter

Europe could make good use of a new SDR allocation

by Jayati Ghosh on 1st March 2021 @Jayati1609

Share on TwitterShare on FacebookShare on LinkedIn

Jayati Ghosh begins a new Social Europe column by pricking Europe’s conscience on its pandemic-related responsibilities towards the developing world.

SDR,special drawing rights
Jayati Ghosh

In their saner moments, most progressives in the European Union might concede that the bloc has not acquitted itself very well as a global player during the pandemic.

To be sure, it has finally displayed some good sense in looking after its own, as the delayed but reasonably large EU-wide fiscal stimulus and future-oriented spending package suggests. And it has broken out of the counterproductive mindset which forbade the European Central Bank from buying the bonds of individual member governments and has even laid the groundwork for the kind of fiscal co-operation that behoves a monetary union. So citizens of Europe have some cause for relief, if not appreciation.

But vis-à-vis the rest of the world—especially the developing world—the EU’s behaviour has ranged from dismaying to reprehensible to downright appalling. Expected debt relief to debtor countries in distress has not been forthcoming. Aid packages have been miserly in the extreme, even more so than after the Global Financial Crisis, and look particularly stingy when compared to the fiscal easements within the EU.

Sickeningly, countries within the EU and then the bloc as a whole have blatantly grabbed available Covid-19 vaccine production for the current year—through pre-orders, secretive side-deals and similar moves—and then been so incompetent in distributing it that some countries are simply stockpiling vaccine, rather than allowing it to be made available to more populous and poor countries.

Worst of all, EU member countries have actively blocked efforts to suspend intellectual-property rights such as patents, which would have enabled much more global production and ensured that people across the world have quicker and more comprehensive access to vaccines and other treatment for the coronavirus. That this is self-defeating for the EU’s own citizens, and caters only to the profits of the big pharmaceutical companies—which have already benefited from government subsidies—makes it even more disturbing from an external gaze.

Cutting-edge thinking straight to your inbox

"Social Europe publishes thought-provoking articles on the big political and economic issues of our time analysed from a European viewpoint. Indispensable reading!"

Polly Toynbee

Columnist for The Guardian

Thank you very much for your interest! Now please check your email to confirm your subscription.

There was an error submitting your subscription. Please try again.

Powered by ConvertKit

None of this is a good advertisement for the EU’s protestations of international co-operation and global solidarity, reducing its standing in the global community. In this context, most countries could be forgiven for looking askance at the EU’s diplomatic efforts and being less inclined to take seriously its homilies and advice.

Sharing allocation

So how can the EU redeem itself internationally, especially as it seems unwilling to change any of these policies? There is one way to improve its currently unsavoury international reputation and do some good for the world economy (and its own economic potential) in the process. This would be by immediately sharing its allocation of the increased issuance of special drawing rights (a form of global liquidity) likely to be announced by the International Monetary Fund imminently.

With the new administration in Washington under Joe Biden having withdrawn opposition to such an issuance, it is likely if not inevitable that $500 billion worth of SDRs will be made available. Ideally the amount should be much more—equivalent to $1 trillion or even $2 trillion—given the scale of the problem and the urgent need to provide resources to developing countries that are facing external-debt problems and desperately need more resources to combat the health and economic impacts of the pandemic.

Even this amount can however be leveraged to generate more impact. The new SDR issue will be allocated to countries according to their IMF quota, which is periodically determined by gross domestic product along with other factors such as openness, reserves and variability—essentially an estimate of relative economic power. In 2016, along with a quota increase of SDR $238 billion, the IMF shifted more than 6 per cent of the quota shares from over-represented to under-represented countries, particularly China and other emerging-market countries. Nevertheless, IMF quotas are still dominated by advanced economies, which account for nearly two-thirds.


Please help us improve public policy debates


As you may know, Social Europe is an independent publisher. We aren't backed by a large publishing house or big advertising partners. For the longevity of Social Europe we depend on our loyal readers - we depend on you. You can support us by becoming a Social Europe member for less than 5 Euro per month.

Thank you very much for your support!

Become a Social Europe Member

This has often been used to argue that most developing countries would gain relatively little anyway from an increase in SDR issue, since the bulk would be taken by advanced countries. It has been estimated that a $500 billion increase in SDRs would deliver around $14 billion in added reserves to low-income countries and $60 billion to emerging markets. But even this smaller share would have huge impact for developing countries. For example, Venezuela would receive more than 8 per cent of its GDP, Zambia almost 6 per cent, Suriname 5 per cent.

Leading the way

And the benefits would be much greater if the advanced countries that will receive the lions’ share of the SDRs—but are unlikely to use them because they do not really need to—would transfer their shares to developing countries, directly or to particular global agencies which could even be created for this purpose. The EU, whose members have 25.72 per cent of IMF quotas, could lead the way in this.

EU countries would receive $128.6 billion of the new SDR allocation. Think what the EU could do with this amount, which it is unlikely to use otherwise. It could immediately eliminate or reduce a significant amount of the bilateral debt of poor countries held by its members—say around $20 billion worth. It could easily put more money (say $3 billion) into the COVAX vaccine facility, allowing it to reach or exceed its target of $6.48 billion for 2021 (it has only raised $4 billion so far), thereby enabling it to buy and distribute free vaccines to the poorest countries.

It could facilitate the Global Social Protection Fund which is being discussed in several international fora and provide significant seed money (say around $50 billion) to support social protection in poor countries with a mostly informal workforce. It could encourage the creation of a Global Public Investment Fund, and begin by providing say $50 billion for that fund, to enable public investments in the developing world much needed for addressing climate change.

The EU could do all this and still not fully use up its allocation of additional SDRs. It would not even notice: member countries have barely touched their existing SDR allocations in years, if not decades. And doing this might nudge or push rich countries such as the United States, Japan and the United Kingdom to follow suit.

Maybe it is too much to ask the EU to move beyond regional navel-gazing towards a more internationalist perspective. Yet if even this costless and painless way of expressing international solidarity does not do it, perhaps nothing will.

This article is a joint publication by Social Europe and IPS-Journal.

Share on TwitterShare on FacebookShare on LinkedIn
Home ・ Economy ・ Europe could make good use of a new SDR allocation

Filed Under: Economy

About Jayati Ghosh

Jayati Ghosh taught economics at Jawaharlal Nehru University, New Delhi for 34 years, before joining the University of Massachusetts at Amherst in January 2021. She is executive secretary of International Development Economics Associates and a member of the Independent Commission for the Reform of International Corporate Taxation.

Partner Ads

Most Popular Posts

global labour market A simul­taneously expanding and shrinking world Branko Milanovic
decarbonisation,energy transition Europe’s de­carbonisation challenge? ‘Wir schaffen das’ Adam Tooze
integrated review Lost an empire, not found a role Paul Mason
Uber v Aslam,UK Supreme Court Putting the brakes on the spread of indecent work Ruth Dukes and Wolfgang Streeck
debt cancellation,cancellation of debt,ECB Cancelling a debt we already own has a false allure Anne-Laure Delatte, Michel Husson, Benjamin Lemoine, Éric Monnet, Raul Sampognaro, Bruno Tinel and Sébastien Villemot

Other Social Europe Publications

RE No. 12: Why No Economic Democracy in Sweden?
US election 2020
Corporate taxation in a globalised era
The transformation of work
The coronavirus crisis and the welfare state

Social Europe Publishing book

With a pandemic raging, for those countries most affected by Brexit the end of the transition could not come at a worse time. Yet, might the UK's withdrawal be a blessing in disguise? With its biggest veto player gone, might the European Pillar of Social Rights take centre stage? This book brings together leading experts in European politics and policy to examine social citizenship rights across the European continent in the wake of Brexit. Will member states see an enhanced social Europe or a race to the bottom?

'This book correctly emphasises the need to place the future of social rights in Europe front and centre in the post-Brexit debate, to move on from the economistic bias that has obscured our vision of a progressive social Europe.' Michael D Higgins, president of Ireland


MORE INFO

Hans Böckler Stiftung Advertisement

Renewing labour relations in the German meat industry: an end to 'organised irresponsibility'?

Over the course of 2020, repeated outbreaks of Covid-19 in a number of large German meat-processing plants led to renewed public concern about the longstanding labour abuses in this industry. New legislation providing for enhanced inspection on health and safety, together with a ban on contract work and limitations on the use of temporary agency employees, holds out the prospect of a profound change in employment practices and labour relations in the meat industry. Changes in the law are not sufficient, on their own, to ensure decent working conditions, however. There is also a need to re-establish the previously high level of collective-bargaining coverage in the industry, underpinned by an industry-wide collective agreement extended by law to cover the entire sector.


FREE DOWNLOAD

ETUI advertisement

Social protection during the pandemic: freelancers in the creative industries

This working paper identifies some key areas of policy intervention for advancing socially sustainable and fair solutions for freelancers working in the creative industries, who are among those who have suffered the most from the economic fallout of the Covid-19 pandemic. In particular, the authors focus on those who work entirely on their own account, without employees (ie the ‘solo self-employed’), and who undertake project- or task-based work on a fixed-term basis.


DOWNLOAD HERE

Eurofound advertisement

Industrial relations: developments 2015-2019

Eurofound has monitored and analysed developments in industrial relations systems at EU level and in EU member states for over 40 years. This new flagship report provides an overview of developments in industrial relations and social dialogue in the years immediately prior to the Covid-19 outbreak. Findings are placed in the context of the key developments in EU policy affecting employment, working conditions and social policy, and linked to the work done by social partners—as well as public authorities—at European and national levels.


CLICK FOR MORE INFO

Foundation for European Progressive Studies Advertisement

#Care4Care!

It took us a global pandemic to realise that we depend on care. Despite all the clapping from the balconies, care workers continue to work in precarious and vulnerable conditions. Women, who represent 70% of the care workforce, continue to suffer from a severe lack of recognition for both their paid and unpaid care work. It’s time for a care revolution! It’s time to #Care4Care! The Foundation for European Progressive Studies (FEPS), together with the Friedrich-Ebert-Stiftung (FES), has been intensively working since 2019 to monitor the EU gender equality policy agenda through a progressive lens focusing particularly on its care dimensions.


FIND OUT MORE HERE

About Social Europe

Our Mission

Article Submission

Legal Disclosure

Privacy Policy

Copyright

Social Europe ISSN 2628-7641

Find Social Europe Content

Search Social Europe

Project Archive

Politics Archive

Economy Archive

Society Archive

Ecology Archive

.EU Web Awards