Hamish McRae: Now is the opportunity to have a well-run, apolitical and authoritative IMF

Economic Life: There are other European candidates to head the IMF, though for obvious reasons Gordon Brown is not one

There is a "who should do it?" question and a "what should it be doing?" one. The fact that the International Monetary Fund should have suddenly to find a new managing director has set the capitals alight with speculation as to the first question but the second is the more important.

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The "who?" raises an issue that has been simmering for some time but has now come out into the open. By tradition, ever since the IMF and the World Bank were founded after the Second World War the head of the former has been a European and the latter an American. There was a powerful rationale for the latter, for the World Bank or to give it its full name, the International Bank for Reconstruction and Development, was originally created to help finance the reconstruction of war-shattered Europe – with most of the initial funding coming from the US.

The fund, on the other hand, was only intended to make short-term loans to help countries in balance of payments deficit adjust their economies without having to resort to trade restrictions. It was quite reasonable that an organisation with this more limited role should be headed by a European, despite the weak financial position of the whole of Europe at that time.

But of course the world has utterly changed since those early years. It is not just that the fixed exchange rate system gave way to floating rates, but the balance of the world economy has shifted away from the old developed world to the new emerging one. The idea that the two top official jobs in international finance should be shared between the US and Europe has become open to challenge. It may be that this practice will be sustained for just one more time, with the most obvious candidate being Christine Lagarde, who is generally admired for the way she has handled the job of finance minister in France. As a further bonus, she was a member of the French synchronised swimming team, so she knows about self-discipline, a quality that after what has just happened would be most helpful.

There are other European candidates, though for obvious reasons Gordon Brown is not one – it is bit embarrassing, given both what happened in Britain and the way he is regarded in Europe, that anyone should even think this might be a runner. But what is being questioned is not that there are competent people in Europe who could do the job. It is whether it is appropriate that it should be a European at all.

There are two reasons to question this. First, the weight of Europe in the world economy is falling rapidly. I have put the Goldman Sachs projections for the size of the different world economies for 2020 in the first graph. They probably underestimate the pace at which the Brics are overhauling the G7 but as you can see, even on these figures, China will be overwhelmingly the world's second largest economy. If the jobs were being shared out on the basis of economic importance there is no question that the next head of the IMF should come from China.

The second reason is that European national finances have been mismanaged in recent years. The problem is not just the indebtedness of the periphery, the nightmare in which Greece, Ireland and Portugal already find themselves engulfed. It is that all Europe has a debt problem – and not just Europe. As you can see from the bottom graph total debt levels (that is national debt, personal debt, company debt, etc, all added together) has shot up everywhere, with the UK in particular whizzing up this league. Why should countries that have succeeded in controlling their debt levels see the job of head of the IMF go to someone from a country that hasn't?

This leads to the "what should it be doing?" question. Should it just come along when some country has got itself into a mess, impose some austerity plans, and then give it some short-term loans? In the case of the recent European rescues it has really been a junior partner to the eurozone bailout fund, chipping in some of the cash but not really having much influence on the policies. Maybe had it had more influence on the Greek bailout that particular deal would not be unravelling right now. On the other hand it could be argued that IMF bailouts have not been universally admired: that it has had a "one size fits all" approach to financial restructuring that means countries are lumbered with policies that simply don't work.

On the other hand, the IMF does have huge experience. It does not have much financial fire-power relative to the sums that can be marshalled by the world's money and bond markets. The hope is and was that the seal of approval of a country's policies from the IMF would enable it to go back to the commercial markets for funds. The IMF itself was never intended to be a long-term lender. It cannot magic away a country's debt burden.

Stand back a moment. The developed world is in the early stages of an economic recovery after a particularly serious recession. It emerges with huge debts, debts that some countries at least will be unable to repay. But the notion of a sovereign default is not at all new. It may be new for a European country but there have been some 200 sovereign defaults since 1978, mostly in small emerging economies, and the IMF has been involved in the financial reconstruction that follows such default on many occasions.

So the question that follows is what role might the IMF play in helping the developed world get its finances in better order during this expansion? How do we use the years of expansion – the good years, or at least the not-too-bad ones – to get ourselves in decent shape before the next world recession comes along?

Now you may think that this has to be the task for national governments, that it is not the job of non-elected international civil servants to tell governments what to do. Of course at one level that must be right. But national governments are in charge only if they have the confidence of the financial markets. Lose that and then control is taken away from them, as has happened now to Greece, Ireland and Portugal. How much better it would have been had there been more external surveillance during the good years.

Maybe it is too much to ask but a well-run, authoritative, apolitical IMF could surely have some influence on governments during the next few years. It could nudge them towards more sustainable finances. It could audit national accounts, showing the consequences of political decisions. It could warn. It is of course doing this to some extent already but it has not achieved the authority that it should have done, or had a generation ago. Instead power has shifted to the ratings agencies, not a happy move for all the obvious reasons.

One thing I am pretty sure of, though: that a non-European head of the IMF would have a better chance of steering it in a new direction. Europe does not have the authority any more. We may just go back to business as usual but it would be an opportunity missed.