Socialist fox in the henhouse - Jacques Attali chosen to head development bank for Eastern Europe

National Review, Sept 3, 1990 by Paul Belien

ACCORDING to a recent Gallup poll, 47 per cent of Americans know of the existence of the European Community (EC). Three years ago only 29 per cent did. That Americans are getting to know the EC is a good thing, because the EC will have a large share in deciding how your tax money will be spent in Central and Eastern Europe.

At their summit meeting in Paris in July 1989, the seven most important industrialized nations (the Group of Seven, or G-7) decided to help Poland and Hungary in their efforts to liberalize their economies. At that time Erich Honecker was still shooting fugitives at the Berlin Wall, and Poland and Hungary were the only two countries of the Warsaw Pact that looked to be democratizing.

The G-7 decided to open up Western markets to Polish and Hungarian products and to coordinate food aid as well as technical, financial, and ecological assistance. Because Western Europeans are supposed to be more familiar with Central and Eastern European affairs than Americans, President Bush agreed that the program should be run by the European Commission, the EC's executive branch. The coordination program was baptized PHARE, after its name in French: Pologne, Hongrie-Assistance d la Restructuration des Economies.

In all, 24 Western countries agreed to join in the effort to help Poland and Hungary recover from the destruction socialism had brought on them. Since then, the Wall has fallen and the Communist regimes in other former Warsaw Pact countries have been toppled. PHARE has been extended to include Bulgaria, Czechoslovakia, Rumania, Yugoslavia, and-until reunification is achieved-East Germany.

At the first meeting of the 24 foreign ministers of the PHARE group, which took place in Brussels last December, the European Commission proposed to set up a development bank for Eastern Europe: the European Bank for Reconstruction and Development (EBRD).

The EBRD will be an even bigger operation than PHARE. Forty countries have agreed to participate; they will provide the bank with $12 billion in capital, of which $6 billion will come from the 12 EC countries, $1.2 billion from the U.S., and the balance from the other 27 participants. The money is to be reserved for Poland, Hungary, East Germany, Czechoslovakia, Bulgaria, Rumania, and the Soviet Union. It will be provided on condition that the country respects human rights and is moving toward a market economy. Three-fifths of the bank's lending will go to private-sector or privatizing companies. The rest will go to help the various governments build up infrastructure.

On May 6 of this year, at a G-7 meeting in Washington, the United States agreed that the EC could choose both the seat and the head of the new bank. France, Great Britain, and West Germany immediately settled the matter among themselves: London was to become the seat and a Frenchman the head (while Germany, in exchange, got the support of France and Britain in its bid for the seat of the future EC central bank). However, it was not the G-7 representatives but President Francois Mitterrand who chose which Frenchman, and he chose Mr. Jacques Attali.

From 1981 to 1983 Mr. Attali, economic advisor to President Mitterrand, had been the chief architect of a disastrous socialist nationalization program which nearly ruined France's economy. To many, the man who had nationalized industries in his own country did not seem the most obvious choice to help privatize industries in other countries. There was, furthermore, a far better candidate for the job: Mr. Onno Ruding, a Dutch banker with long experience at the International Monetary Fund, and a conservative Christian Democrat.

Although a majority of EC countries preferred Mr. Ruding, President Mitterrand insisted on his friend Mr. Attali, who has belonged to his personal entourage since 1974. When the other, smaller EC countries-which did not have representatives at the G-7 meeting-read about the EBRD deal in the papers, they were furious.

The Dutch protested. So did the Belgians, the Danes, the Greeks, and the rest. They felt betrayed by their bigger EC partners, but there was not much they could do. France had secured the support of most of the non-EC participants in the EBRD for Mr. Attali, and the Americans kept out of the quarrel. The protestors were reluctant to pull out of the EBRD and risk killing the whole project. And so Mr. Attali got his job, and the former Warsaw Pact countries, in their struggle to recover from socialism, were saddled with a prominent socialist.

They got some good news early this month, however, when Mr. Attali overplayed his hand and stirred up the dispute all over again. At an organizational meeting in London he angered many of the other participants both by his autocratic style and by his proposals for a large network of branch offices in the countries to be helped, which other participants felt would impose an unwieldy bureaucracy on a project whose point was speed and flexibility. Most important, the United States was one of the countries angered, and, indeed, Administration officials told the press they might have trouble getting authorization through Congress if their questions weren't settled satisfactorily. The East may be saved from socialism twice in one year.