Dominique Strauss-Kahn’s likely replacement as managing director of the International Monetary fund by Christine Lagarde, another French Finance Minister, has highlighted an awkward reality – Europe’s predominance over the world’s foremost international financial institution.

Not only has a European, by tradition, always been appointed managing director, but Europeans have also dominated the IMF’s executive board, which oversees its day to day management. Together, the member states of the European Union account for 31 per cent of board votes, despite forming just 20 per cent of global GDP in purchasing power parity terms (figure 1). Even after a major quota reform approved last year, demands for reallocation are likely to continue as Europe’s relative economic clout continues to decline in the twenty-first century.

1. Share of IMF Votes and Share of Global GDP, Selected Countries

Based on current allocations. Allocations are reviewed every five years, and will change again in 2012.

That leaves many top European diplomats asking: how can Europe preserve its influence in a reformed IMF, while ceding place to emerging powers?

One suggestion, favoured by many EU commentators, is for Europe to pool its votes, either into a single European Union bloc or simply one eurozone seat. A single European chair, it is argued, would equal the United States, possess veto power, and massively outweigh any emerging power on the board.

However, such a change is more likely to accelerate than prevent European decline. By forming a single director, the proportion of European votes would have to be massively downgraded, perhaps to a similar level as the United States (16.8 per cent). Europe’s more visible position could increase resentment among other countries, while IMF policies would become associated with Europe rather than with America, the current largest shareholder. Even more importantly, it would dramatically undermine the degree of Europe’s actual voting power inside the organisation, by rupturing the carefully woven patchwork of voting alliances built up by European member countries.

Such alliances are crucial to the maintenance of European influence. While EU members formally account for an already sizeable 31 per cent of the shares, their directors can cast up to 36 per cent of the votes. This is because by statute the IMF’s executive board has only 24 directors, obliging smaller countries to donate their votes to other countries around the table, with middle-size European states being among the most trusted allies. The Netherlands, for example, typically casts votes on behalf of a bloc including Israel, Armenia and the Ukraine; Italy casts the votes of Greece, Albania, and Malta; and Belgium has traditionally cast votes for a smattering of countries including Turkey and Belarus.

This diplomatic clout is a perfect example of European ‘soft power’, in that no-one dictates that the Ukraine must entrust its votes to the Netherlands, or East Timor to Italy. The Ukraine could just as easily join with Russia, if they so desired, and East Timor could well support Indonesia. Yet because Italy and the Netherlands are seen as peaceful and constructive partners – in common with select other countries such as Canada, Australia and Brazil – they are able to leverage their influence in this way. A dynamic network of bespoke alliances allows Europeans to increase their dominance, while masking the full extent of their control.

The scale of the diplomatic ‘leverage’ granted to smaller European states, measured in terms of the ratio of the total votes they cast (including those ‘given’ by other countries) to their official quota, can be considerable (figure 2). Belgium, for example, leads a group representing almost five per cent of the IMF vote share – some two and a half times their original quota of 1.86 per cent, and almost ten times their proportion of global GDP. The Netherlands is close behind, by more than doubling its votes from 2 to 4.5 per cent, and Switzerland, a non-EU country, is likewise comparable.

2. Who’s Popular? Diplomatic ‘Leverage’ in the IMF (share of total votes, including those donated by other countries, over original country allocation)

Selected countries, based on current quotas and constituencies, showing all countries with positive leverage. Countries that only represent themselves are at 1. Spain rotates a director with countries whose voting rights are lower than its own, and is therefore below 1.

Consolidating such alliances is a far better means for Europe to maintain its influence in the century ahead, than forming a single looming bloc. For in the playground politics of international diplomacy, Europe remains the trusted intermediary, and will become more so, as European states become ever smaller and less threatening. As the joke goes, in future there will be only two kinds of country in Europe – those that know they are small, and those that do not. And ironically, as long as others believe Europe to be weak, it may not be as weak as it appears.

[This article originally appeared in E!Sharp, as How Europe Can (Still) Run the IMF in the Twenty-First Century].