The issue at stake was not, as it happens, of vital importance to the world economy. But the debacle which has ensued poses serious questions about the future of the IMF and its leaders.
It came at the worst possible time, with the IMF's role in question on the occasion of its 50th birthday. The original raison d'etre has all but disappeared with the collapse of the fixed exchange rate system set up in the Forties. The IMF is now concentrating on providing support for developing and formerly Communist countries. It cannot afford to look less than competent in a role of its own creation.
The origins of the row lay in the deeply held convictions of Jean-Michel Camdessus, the IMF's French managing director, that the likely growth of world trade over the next five years heralds a looming shortage of liquidity with which to keep the wheels of international commerce turning smoothly. The solution he proposed was, in effect, to give all 179 member countries of the IMF bigger overdraft facilities.
But Mr Camdessus's unstoppable force met head-on the immovable object of Hans Tietmeyer, the formidable president of the German Bundesbank. Dr Tietmeyer scoffed at the idea that there is a need to inject more cash into the world trade system. He fears that printing international money - like printing money at home - could increase the risk of inflation.
On Saturday the G7 rallied around an Anglo-American compromise to create pounds 15bn of new reserves. This would have concentrated the newly-created reserves on the former Communist countries of eastern Europe and the developing countries.
But Mr Camdessus goaded the developing countries to thumb their noses at the IMF's wealthy paymasters, arguing that his scheme would provide them with more help, more quickly. He was so successful that the Anglo-American compromise was duly thrown out. But the damage did not stop there. A separate scheme to help to finance the efforts of formerly Communist countries to make the transition to liberal capitalism was also torpedoed by the developing countries, in the mistaken belief that this could be used as a bargaining chip with which to bully the G7 into submission.
Mr Camdessus bears a heavy responsibility for the events in Madrid. His insistence that Germany could be dragged any further than the G7's compromise smacks either of short-sightedness or bloody- mindedness on his part. Neither is an ideal attribute in the leader of a global institution, especially one which is unsure of its direction for the next 50 years.Reuse content