DOMINIQUE STRAUSS-KAHN’S arrest disrupts sensitive talks on the Greek financial crisis as the IMF chief is a prime player in the country’s troubled bailout.
The events in New York come as the international authorities discuss a second rescue of the country, which faces the prospect of a debt default next year without increased external aid.
With the IMF centrally involved in the wider battle against the resurgent euro zone sovereign debt crisis, Strauss-Kahn is seen as a hugely influential “European who knows Europe” at the helm of the global organisation.
He had been due to meet German chancellor Angela Merkel in Berlin yesterday for discussions on the increasingly precarious financial situation in Greece.
He was also due to attend a meeting tonight in Brussels of euro zone finance ministers and further talks tomorrow with ministers from all 27 member states.
Although no formal decisions are expected at these meetings, the Greek situation is advancing rapidly as the European and global authorities confront a renewed upsurge of tension in sovereign debt markets.
“You’ve got a charismatic head of IMF, very much hands-on in the Greek negotiations, so the question is who do they replace him with on that side,” said a European diplomat.
“The general sense is this doesn’t change anything on the policy front. The IMF position is well known. It’s a strong institution and will continue to go about its business.”
Although France and the European Central Bank resisted IMF involvement in the euro zone crisis from the outset, it was Merkel who insisted on an IMF role as a condition of Berlin’s participation in bailouts.
The IMF became a leading force in the €110 billion rescue of Greece a year ago by ad hoc fund and in Ireland’s €85 billion bailout last November. It is also participating in the €78 billion rescue of Portugal.
Strauss-Kahn’s lawyer has said he will plead not guilty to charges over an alleged sex attack on a hotel maid.
Although euro zone officials were at pains to say Strauss-Kahn must enjoy the presumption of innocence, questions are being asked as to whether any change of leadership at the IMF would result in any subtle change in its response to the crisis.
However, EU leaders were already braced for the possibility of change at the top of the IMF because Strauss-Kahn was expected this summer declare his intention to seek the Socialist nomination in the French presidential election next year.
The leadership of the IMF traditionally goes to a European candidate. This presumption is under threat, however, with the ascent of the G20 group of advanced and emerging economies as the pre-eminent power in global policymaking.
Emerging countries have been exerting pressure for the IMF leadership to go next time to the developing world.
Long before the alleged incident in the Sofitel New York, however, well-placed European officials were saying EU leaders were angling to keep the IMF leadership in European hands until they brought the sovereign debt crisis under control.