Dominique Strauss-Kahn, Director General of the International Monetary Fund (IMF), has been arrested Saturday, May the 14th , charged of “criminal sexual act”, “attempted rape”, and “sexual abuse” towards an employee of the Sofitel hotel where he was staying in New York. Although the veracity of the charges has yet to be been proven, the incarceration of one of the most powerful man in the world raises nonetheless several concerns, involving both national and international levels.
Unfortunately, whether the number one of the IMF is judged guilty or not guilty of the charges that have been imputed against him, the consequences of his incarceration are already of major (irreversible) scale: Dominique Strauss Khan “affair” has the effect of an atomic bomb dropped on European and French political spheres.
Which consequences for the Eurozone?
On the European level, the scandal has had direct implications for the Eurozone, with the euro currency depreciating to 1,4056 USD Monday the 16th in the morning, against 1,4108 USD last Friday the 13th in the evening, showing that the incarceration of the IMF Director General is not without consequences for European economy. In fact, the euro depreciation highlights that his arrest of has caused financial markets to raise doubts about IMF commitments to participate to the restoration of economic stability within the Eurozone.
Dominique Strauss Kahn was indeed the most fervent promoter of IMF involvement alongside the European Central Bank (ECB) in the financial aid provided to indebted Eurozone countries. For instance, the IMF, together with the ECB, created last year the European Financial Stability Fund (EFSF), promising aid up to 450 billion euros to Eurozone members in financial trouble. Today, the IMF is deeply participating to the bailout of Greece, Ireland and Portugal. Showing his deep concern for the stability of the European Monetary Union (EMU) Strauss Kahn, at time of his arrest, was on his way to meet German Chancellor Angela Merkel with for main purpose to convince her to launch the third phase of Greek rescue package, including the lending of 110 billion euros.
Yet, the Director General is without doubt soon to be replaced at his prestigious post, and his successor may not be of the taste of Europeans. Rumours are already invoking the possibility for German finance minister Peer Steinbrueck, Poland’s central bankor Marek Belka or French finance minister Christine Lagarde to replace the detainee, and Germany has raised her voice reminding that the head of the IMF has, since 1946, been in the hands of European nationals. But the job could well rather be attributed to a national from a developing country, in line with the general necessity to reform the IMF and give more voice to emerging economies within the financial institution. In the lasting critical economic context (Greece records an increasing debt of 166% of its GDP and the pubic spending cuts undertaken have so far been had no satisfying results), the shift of the IMF away from European issues could have great negative consequences for the Eurozone that is still struggling to regain the trust of the financial markets.
Although the situation cannot yet be dubbed ‘worrying’, as shown by the decision reached Monday by the Finance Ministers of the Eurozone to provide Portugal with a loan amounting to 78 billion euros, (which will be equally provided by the IMF, the European Financial Stabilizing Fund (EFSF) and the European Financial Stabilizing Mechanism (EFSM)); EU Member States should still be aware of the potential consequences of loosing their seat at the head of the institution.
and for France’s political arena?
The arrest of the IMF’s Director General has also great implications for politics in France. Dominique Strauss Khan was indeed seen as the best candidate (although he had not officially expressed his intentions to participate in the elections as forbidden by his mandate at the IMF) to run the next Presidential 2012 elections under the colours of the French socialist party. In the past month, numerous polls prognosticated that in a second ballot turn against the current president Nicolas Sarkozy, Strauss-Kahn would win easily, by gathering 60% of the votes.
His arrest probably marks the end of his potential candidacy to the elections. Even if he is finally deem not guilty by the American court, his past of womanizer will surely not been forgotten by the French people, especially in light of the complaint for sexual aggression that is about to be lodged against him by the French journalist Tristane Banon. According to Nicolas Sarkozy, the “DSK affair” is a disaster for the socialist party, which has lost in the story an important round in the presidential battle: the one of the moral.
The withdrawal of Dominique Strauss-Kahn will have an impact on every French political parties running the next 2012 elections. Within the Socialist Party, a leader will now have to be designated among the potential candidates: Will it be Martine Aubry, François Holland or Ségolène Royal? At the centre of the political landscape, the absence of the socialist favourite could strengthen the position of the ‘Mouvement Démocratique’ (MoDem) and of the ‘Confederation des centres’ (centres confederation). Yet, the major consequence still remains the vacuum left by the elimination of the main adversary to the current right-wing French president and his party, the ‘Union pour un Mouvement Populaire’ (UMP).
Unfortunately, even the IMF’s Director General were indeed the target of a conspiracy, as some French proponents would like to think, he is nonetheless not out the woods. All in all, the consequences of Dominique Strauss Kahn’s arrest still need to be appreciated in a long-time frame. It remains to hope that his successor at the head of the main international financial institution will be a European national, and that, the shock passed, 2012 presidential elections will offer to the French people the candidates it deserves.
Angela Shoeman
Membre des Cabris de l’Europe
