Strauss-Kahn’s arrest and absence looms over key Euro Zone Meeting in Brussels

The meeting of euro zone finance ministers and other luminaries in Brussels, Belgium has been rocked by the arrest of International Monetary Fund (IMF) managing director Dominique Strauss-Kahn over the weekend in New York on sexual assault charges.

Strauss-Kahn had been scheduled to attend the Brussels parley to discuss possible new financing assistance for debt-stricken Greece, the formal approval of the 78-billion euro bailout for Portugal, and the progress Ireland is making with its own debt woes.

Now, with Strauss-Kahn facing very serious charges in New York and his likely absence from his job for an unknown period of time, doubts and confusion are growing over how the IMF will function in coordinating financial programs with the European Union and European governments.

The situation in Greece is particularly urgent. Many euro zone members are increasingly unhappy with Athens’ inability to get its budget deficit under control. There are widespread fears that the Greeks are facing a likely default no matter what they do.
Strauss-Kahn was believed to have played a key role in the negotiations that led to Greece’s bailouts and also to be very sympathetic to the Greeks.

Eswar Prasad, a professor of international economics at Cornell University and a former IMF official told BBC: The leadership vacuum at the IMF comes at a highly inopportune time for Europe, which is teetering on the brink of a full-blown debt crisis.”

Lucinda Creighton, the Irish Republic minister for Europe, told Irish broadcaster RTE that Strauss-Kahn is somebody who has had a significant role in the events of recent months in relation to the Irish bail-out.”

But she added “it is not unusual for the head of the IMF to be absent from a meeting like this and I don't think it'll really have any impact.

Nonetheless, Gavin Hewitt, BBC’s Europe editor, commented that Strauss-Kahn’s absence will be keenly felt.

“[Strauss-Kahn] was intimately involved in the detail of the bail-outs for Greece, the Republic of Ireland and Portugal,” he wrote.
“He personally handled many of the negotiations and micro-managed some of the terms and conditions. As a former French finance minister, he personally knew most of the key leaders and officials managing the crisis. He passionately believed in the survival of the euro and, under him, the IMF was fully committed to finding a way out of Europe's debt crisis.”

Hewitt added that: “if and when… Strauss-Kahn is replaced, the leadership of the IMF may well not go to a European, and officials in Brussels are already anxious about this.”

Jan Randolph, head of sovereign risk analysis at IHS Global Insight, also believes that Strauss-Kahn’s sudden absence will have a deleterious effect on euro zone affairs, at least in the short term.

“[Dominique Strauss-Kahn] has orchestrated the IMF's response to the global crisis and now the Eurozone crisis right from the start,” Randolph said.

“He had enormous personal stature and presence in supporting the IMF involvement in crises and bailout and he often used his personal stature and rapport with key players – including, for example, coaxing the Greek Prime Minister to keep on the reform track and influencing the German Chancellor Angela Merkel over the design of the various bailout packages, their terms and a more general, permanent solution to the wider Eurozone crisis.“

Randolph added: “At these high levels and issues of national and global importance, personal stature and personal chemistry does matter. [Strauss-Kahn] has been involved right from the beginning of the global financial crisis and now [the] Eurozone crisis and carries with him full awareness and knowledge and therefore special experience. In these very 'personal capital' senses it may be difficult to find a replacement. It's like losing an experienced ship's captain, while navigating particularly difficult, unchartered waters.”

Still, Randolph concluded: “The IMF as an institution and its financial support packages will carry on and the final political decisions about the nature and size of Eurozone support packages will be unaffected by [Strauss-Kahn's] absence.”

Douglas C. Borthwick, Managing Director at Faros Trading, LLC in Stamford, Conn., is not overly concerned about Strauss-Kahn's arrest as it relates to the debt crisis in Europe.

“It is doubtful that [the arrest] will in any way derail talks to extend Greek loans and financing terms over the next two days at the Euro-area finance Ministers Meetings,” he said.” If anything, we would expect the IMF will be more lenient in their negotiations, given they have received a black-eye this weekend.”