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SPIEGEL ONLINE

05/16/2011 05:22 PM

The Strauss-Kahn Arrest

The Fall of the Global Economy's Top Steward

By in Washington

Dominque Strauss-Khan is as much a charmer as he is a banker, making him an unusual choice to head the IMF. But his stewardship of the institution during the global financial crisis drew praise. The rape allegations now lodged against him are creating havoc for a summit addressing the rescue of the euro this week.

Dominique Strauss-Kahn speaks English with only a slight accent. He likes to share his considerable knowledge of photography and cinema during conversations. All in all, he comes across very much the Frenchman. But the first person who comes to mind when one visits his office on a top floor of the Washington headquarters of the International Monetary Fund is a certain Bill Clinton.

Like the former United States president, Strauss-Kahn, 62, possesses the ability to focus his absolute concentration on those he wants to persuade. When, for example, this author told Strauss-Kahn that he had attended a lecture of his in Paris. The lecture hall was very large and it would have been impossible for Professor Strauss-Kahn to remember too many faces. But he answered the reporter promptly, with a broad smile. "Of course, I immediately thought you looked familiar."

It was the kind of pleasant white lie that people are actually pleased to hear. Strauss-Kahn also sweet-talked his way out of the irritations caused in the run-up to the interview. SPIEGEL had requested an interview about the after pains of the crisis. What was meant, of course, was the international economic crisis. But a few aids to the IMF chief actually believed the interview was intended to cover Strauss-Kahn's own personal crisis -- namely the affair he had with a co-worker in 2008. It clearly agitated people.

The impressions created in the interview underscored what a fish out of water Strauss-Kahn actually is at the IMF, a workplace of sober technocrats who move masses of money, but seldom the actual masses. One of Strauss' predecessors in the position was Horst Köhler, who would later become Germany's president.

An Alibi?

Under his successful leadership of the IMF, some of the institution's employees have taken to wearing "Yes, we Kahn" t-shirts, and Strauss-Kahn had risen to become the best hope for the Socialist Party in the upcoming presidential campaign. Yet in the interview, it was clear that the Frenchman was still very concerned about the prospects of another crisis.

There was also constant concern about making another false move. It is rumored that French President Nicolas Sarkozy had warned the ladies' man that, as IMF chief, he should never ride alone with a woman in an elevator again.

Such fears have now been spectacularly surpassed by the new allegations. And if it is true that Strauss-Kahn is guilty of being naked and sexually harassing a maid in a New York hotel, then it will mean a lot more than merely the end of a political career. And it will lead to more than just a upheaval of the French political landscape. The maid, it was reported on Sunday, also identified Strauss-Kahn during a police line-up.

Though French media reported on Monday that the IMF leader might have an alibi. French radio station RMF reported that he was having lunch with his daughter at the time of the alleged attack.

The case could also mean the end of the grand experiment to turn the International Monetary Fund into a new "money power." When Strauss-Kahn became managing director of the IMF in 2007 -- the result of an antiquated arrangement between Europe and the United States stipulating that an American heads the World Bank and a European the IMF -- it looked as though it had been a deft maneuver by French President Nicolas Sarkozy to sideline a potentially strong rival in the golden handcuffs of an important appointed position outside of France.

It was by no means a glamorous posting, either. The IMF's crisis management has often failed, and the institution only lent several billion dollars during Strauss-Kahn's first year in office. A number of developing countries and emerging countries had eschewed the fund because they were no longer willing to accept its stringent requirements for lending.

A Fast Rise During the Financial Crisis

Then the global financial crisis struck and countries suddenly began turning to the IMF again. The IMF's money reserves were expanded, with up to $900 billion now available that can be deployed worldwide. The institution, with its 187 member states, rose to become a global crisis center, with Strauss-Kahn looking increasingly like the true world banker.

Suddenly, Strauss-Kahn was able to deliver platitudes such as: "It would make sense to draw on the IMF as global rescuer. That would save national resources and help create stability in the global economic system."

Or: "You have to imagine the IMF as a doctor. The money is the medicine. But the countries -- the patients -- have to change their habits if they want to recover."

The monetary fund chief also proposed creating a "global safety net." Of course, he himself wanted to be in charge of it.

The airplane in which Strauss-Kahn was arrested on Saturday, was supposed to fly him to Europe, where he was scheduled to meet with German Chancellor Angela Merkel and had planned to attend negotiations surrounding the bailout package for Greece. The IMF is expected to provide one-third of the funds to the Athens rescue package.

The New York Times reported this week that Greek bureaucrats have been irritated by IMF inspectors currently investigating the country's bookkeeping as part of negotiations for the bailout package and that they view the IMF as "spies" working for Brussels and Washington.

A Strong Negotiator with Decisive Weaknesses

It is ironic given his arrest that Strauss-Kahn, with his reputation for strong negotiating abilities, is in greater demand than ever before in efforts to save the euro. Indeed, after Greece, Ireland and Portugal, whose debt messes still need to be cleaned up, are next up in line.

Strauss-Kahn is good at negotiations and the art of persuasion, and for a long time he seemed unimpeachable -- if only it weren't for the women. Back in 2008, it emerged that when Strauss-Kahn attended the Global Economic Forum in Davos, he tended to more than the health of the world economy. He also paid intense attention to Piroska Nagy, a co-worker from the IMF's Africa department.

Nagy's husband had discovered Strauss-Kahn's piquant e-mails on her Blackberry and informed a top Arab IMF employee, who then went public with claims Nagy was having an affair. An internal investigation ensued, but Strauss-Kahn's wife, a prominent French TV journalist, claimed she still "loved him like the first day." Nagy left the IMF and Strauss-Kahn escaped with little more than a black eye.

But he was also let off the hook because Europe doesn't want to lose the IMF's top post. Outside of Europe, countries around the world have been pushing for the reform the IMF's archaic structures. Nine of the 24 seats on the IMF's executive board are held by Europeans -- a privilege viewed by many to be outmoded.

The tradition that a European gets the top IMF job still applies today, but wrestling over the rule could begin anew. If Strauss-Kahn falls, then his successor just might be an Asian, an African or a Latin American. For now, John Lipsky has been named interim managing director, but he has already announced he will step down this summer. Other names are also circulating for a possible successor, but none are political heavyweights on the same level of Strauss-Kahn.

'The Last Thing Europe Needs Right Now'

Eswar Shanker Prasad, an international economics professor at Cornell University, told the Washington Post newspaper it is "highly unlikely" that Strauss-Kahn still has a future ahead of him in politics.

Strauss-Kahn is denying the accusations and has also retained the services of a celebrity lawyer, who already had experience defending popstar Michael Jackson. He's also having to live with new allegations from a fellow party member back in France. She is claiming that Strauss-Kahn sexually harassed her daughter.

And the euro bailout? For the moment, the crisis is being drowned out by the Strauss-Kahn headlines. And that's not good, argues Prasad: "Additional uncertainty is the last thing that Europe needs right now. … With Strauss-Kahn's departure, the can no longer be counted on to watch Europe's back as it becomes increasingly clear that the EU-IMF program in Greece is not working."

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