The arrest of IMF director Dominique Strauss-Kahn on charges of assault, attempted rape and unlawful imprisonment of a chambermaid in a $3,000 a night Sofitel suite in New York was sufficient to shock the sensibilities of even the most jaded observers.
The violent nature of the charges are remarkable. Strauss-Kahn allegedly emerged naked from the bathroom of his suite, fondled the hotel employee and threw her on a bed. She claims that she escaped twice and reported the incident as soon as she could. The IMF official, who has played a key role in the bailout of Greece, was pulled off a plane minutes before takeoff on Saturday, after divulging his location to a hotel security official who was supposedly helping him find a cell phone misplaced after his rushed departure earlier in the afternoon.
It isn’t the first time that the luxury-loving Strauss-Kahn has been the subject of scandal. The 62-year-old Socialist and economist was accused of attempted rape about 10 years ago by a journalist who declined to press charges. Strauss-Kahn also was admonished for having an affair with an IMF staffer.
Strauss-Kahn claims he was set up by political opponents, and his attorney, celebrity lawyer Ben Brafman, plans to enter a plea of not guilty. But it is difficult to imagine how Strauss-Kahn will remain at the helm of the IMF, even if he is acquitted of all charges.
His departure from the IMF would very likely have some impact on the course of the European debt crisis, and on capital markets. As the head of the IMF he has been a source of sympathy and support for Greece, arguing that it makes little sense to impose punitive austerity measures on the country. He also has been the leading candidate to challenge France’s right of center president, Nicolas Sarkozy. Someone else may fill his job, but not his role.
For the time being, the IMF will be run by first deputy John Lipsky, a lower profile U.S. economist without a strong Socialist identification. Lipsky is slated to retire soon, anyway. And his successor could shift the direction of the IMF, which has often been run by Europeans and Americans proffering advice to emerging markets. Now those emerging markets may want their own opportunity to run the organization, which ministers to weak economies. His successor could shift the ideological and geopolitical character of the IMF, leading to tougher bailout terms for peripheral European nations. Political leadership in those countries have viewed Strauss-Kahn, who spent a good part of his childhood in Morocco, as an ally.
It’s too soon to know just how the European debt crisis will evolve. Will Greece have to restructure its debt, as many investors believe? Will Spain join the list of European countries seeking a bailout? Without Strauss-Kahn running the IMF – or leading France, for that matter – the entire European debt structure could take a somewhat different direction. There are plenty of strong voices--such as German Chancellor Angela Merkel – who will be more than willing to lead that shift.
The stunning arrest of Dominque Strauss-Kahn includes another force to be reckoned with – the NYPD. The New York police department is used to conducting itself on the global stage and is unlikely to bow to outside political pressure – domestic or international. It already has challenged the notion that the suspect – who was not in the US on official IMF business – is entitled to diplomatic immunity.
