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Arrest may cloud Europe’s debt talks

IMF chief called a noted leader

By Pan Pylas
Associated Press / May 17, 2011

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LONDON — The arrest of the International Monetary Fund’s chief, Dominique Strauss-Kahn, adds more uncertainty to Europe’s debt crisis by removing a prominent specialist from talks on how to save the 17-nation eurozone.

Strauss-Kahn, who was France’s finance minister when the euro was introduced in 1999, is an authority on Europe’s economic issues and knows its complex web of power politics. His leadership is broadly perceived to have been crucial to the currency union’s struggle with the biggest crisis since its inception. His absence will increase worries about the IMF’s longer-term capacity to help 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.

The IMF’s second-in-command, John Lipsky, was named acting managing director. He has said he will step down in August, when his term ends.

The prevailing view in the markets is that Strauss-Kahn’s arrest is not going to affect this week’s meeting of European finance ministers. Eurozone countries signed off on Portugal’s $111 billion bailout and discussed whether to give Greece more help beyond its current $156 billion rescue.

Strauss-Kahn had been expected to quit his post later this year to launch a bid for the French presidency in next year’s election. But analysts said his arrest in New York on charges that he sexually assaulted a hotel maid will quicken changes to the fund’s leadership and affect its position in international finance.

His stewardship of the Washington, D.C.-based institution has been widely praised.

“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. “His loss, be it temporary or otherwise, will clearly be formidable for a while although in my book it will be manageable.’’

A key question is whether the IMF is now more likely to be headed by someone outside the European Union. Prime Minister David Cameron of Britain has said he would not object to a non-European head the fund.

The convention is that the European Union proposes the IMF’s managing director, while the United States proposes the president of the IMF’s sister organization, the World Bank.

The arrangement is increasingly considered anachronistic. Europe is now a heavy recipient of funds from the IMF, and big cash injections come from countries like China, which is a major player after backing calls to help the fund triple its financial firepower.

“China could use its influence to support an emerging-market candidate for the top IMF job, should the vacancy arise,’’ Randolph said.

Germany’s chancellor, Angela Merkel, said it was inappropriate to discuss changes at the top but indicated the German government still thinks a European should lead the IMF.

“Emerging countries certainly have a claim to the post of IMF chief as well as the post of head of the World Bank,’’ Merkel said. “But I think that, in the current phase, in which we have a lot of discussions connected to the euro, there are good reasons for Europe also to have good candidates available.’’

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