Attali tries to head off coup at EBRD

JACQUES ATTALI and his management team at the European Bank for Reconstruction and Development are working on proposals to restructure the organisation in an attempt to forestall a coup against him by the bank's leading shareholders.

The plans are likely to include the merger of the bank's merchant and development banking arms to counter criticisms that not enough money has been channelled to Eastern Europe.

But it is understood that the current management will not propose the creation of a chief executive, who would in effect be a 'number two' to Mr Attali.

Mr Attali is fighting for his political life as finance ministers of the Group of Seven, principal shareholders in the EBRD, prepare to pin his fate on the outcome of an in-depth audit next month of lavish spending by the bank. Divisions within G7 over whether and when to dismiss Mr Attali have in part allowed him to remain in his post, despite adverse publicity following disclosures that the bank spent pounds 55.5m on the refurbishment of its London headquarters, and pounds 750,000 on chartering private jets.

Further damning revelations are set to emerge when the audit report is published on 15 July. Britain, host country of the EBRD, believes the evidence of the report will be severe enough to secure French and German support for a decision to sack Mr Attali. The French EBRD president lost crucial political backing when France's Socialist government was defeated in last April's election.

Britain has already begun to follow up the G7's decision to change the operating structure of the bank in what may be a post-Attali regime. In Washington last week, Baroness Chalker, head of the Overseas Development Administration, sounded out Ernie Stern, who is in effect number two at the World Bank, for a similar position in the European bank.

Mr Stern was approached about a senior EBRD position in 1990 but made it clear he would not work for the bank while Mr Attali ran it.

The G7 has yet to draw up a short list of potential replacements for Mr Attali, but one candidate is likely to be Onno Ruding, the former Dutch finance minister who was the leading choice before President Francois Mitterrand proposed Mr Attali. There are also suggestions that a German candidate may be picked.

Mr Attali came under attack during the bank's annual meetings last April, but there were few signs then that his job was under immediate threat. Last week, however, Lloyd Bentsen, the US Treasury Secretary, made it plain that Mr Attali's future is now in jeopardy.

Washington has tried to oust Mr Attali by proposing a chief executive for the bank, in effect reducing Mr Attali's position to titular head. The EBRD president objected, and the US failed to win support from the European shareholders.

The EBRD furore and pressure on Western budgets has prompted Mr Bentsen to institute a high-level US Treasury review of wages and benefits at all the international financial institutions, such as the IMF and the World Bank. The report has UK backing and may lead to a new era of austerity.