Strauss-Kahn sex charges likely to isolate IMF in debt crisis talks

IMF's situation 'like losing an experienced ship's captain while navigating uncharted waters', according to one analyst.

Dominique Strauss-Kahn sits behind court officers at Manhattan criminal court, New York. Photograph: Pool/REUTERS

With Dominique Strauss-Kahn locked in a New York police station, the IMF is likely to be sidelined in talks about the European debt crisis, City analysts warned.

Despite providing billions of euros in funds to Greece, Ireland, and more recently Portugal, experts said that the IMF could now be distracted by the allegation facing Strauss-Kahn, and the power vacuum left behind him, thereby damaging its chances of bringing the eurozone's warring factions to a workable conclusion.

Strauss-Kahn was French finance minister when the euro was created in 1999, and had brought his organisation centre stage as governments wrestled with the financial crisis. As an authority on Europe's economic issues and being comfortable with its web of power politics, he has paid particular attention to the lurching sovereign debt crisis being played out in Brussels.

His experience is widely perceived to have been crucial while the German chancellor, Angela Merkel, and French president, Nicolas Sarkozy, wrestled with the eurozone's biggest crisis since its inception. His absence will increase worries about the IMF's longer-term capacity to promote deals to an increasingly divided Europe. "It's like losing an experienced ship's captain, while navigating particularly difficult, uncharted waters," said Jan Randolph, head of sovereign risk analysis at IHS Global Insight.

Nick Bullman, of advisory firm CheckRisk, said Ireland faced losing one of its champions in the negotiations: "Sarkozy and Ireland's taoiseach, Enda Kenny, have not hit it off well, and the Strauss-Kahn arrest frees Sarkozy to take a tougher line on Ireland's corporate tax rates," he said. France wants Ireland to increase corporate tax from 12.5% to nearer the EU average, in return for a more generous debt package.

In Washington, Strauss-Kahn's absence will be felt, especially among staff from outside the EU and US who saw him as less of a western poodle than predecessors.

In Europe, he argued vociferously for Greece to be cut more slack as it searched for a solution to its huge debts. A meeting scheduled for Monday with Merkel was expected to involve a heated exchange on Greece, with Merkel taking a harder line.

Strauss-Kahn allowed his staff earlier this year to attack the US, its main paymaster, for running a bigger budget deficit while others tried to reduce theirs. He also changed the emphasis of the fund's lending from simply a means to impose neo-liberal capitalism on near-bankrupt victims, to a more sympathetic programme with less micro-management from Washington. At the IMF's most recent conference in Washington, Strauss-Kahn stressed the failure of western governments to promote job creation as a means of safeguarding social democratic structures. He feared the riots in Athens would spread across Europe.

"Whatever else one might like to think of him, Dominic Strauss-Kahn does have the remarkable ability to cut a knife through dogmatic politics and diplomacy when it occurs," said Howard Wheeldon, senior strategist at BGC Partners.

One question is whether it is now more likely the IMF will be led by someone outside the EU, possibly from an emerging economy. David Cameron has said he would have no problem if a non-European headed the fund, though Merkel said she favoured a European.

[Source : guardian.co.uk]