Sunday, 15 May 2011

IMF chief Dominique Strauss-Kahn's arrest may prolong ongoing debt crisis

Mr Strauss-Kahn, 62, was taken off an Air France plane at JFK airport just minutes before it left for Paris.
Police say he faces three charges, including attempted rape. His lawyers say he denies the claims.

Markets are expected to react negatively on Monday to the news of Mr Strauss-Kahn's detention in New York.
The former French finance minister had been a key ally for the European Union as Greece, Ireland and Portugal all sought billion pound bail-outs to pay their debts.

Strauss-Kahn had been due to attend a crucial meeting of eurozone finance ministers in Brussels on Monday, to talk about the final details of a €78bn (£69bn) IMF-backed bail-out for Portugal and discuss further funding for Greece.

Simon Ward, chief economist at fund manager Hen-derson, said: "I would think that the Portuguese bail-out is pretty much locked down, but the question of additional support for Greece remains. This will complicate negotiations and I would expect the markets to react negatively."

"This adds uncertainty to the prospect of early resolution. The more uncertainty exists in terms of major institutions, the higher the cost for a country like Greece," said Louka Katseli, Greece's minister of labour and social security. "What is needed are firm decisions [to ensure] financing for the next years."

Saddled with debt estimated to be €340bn and climbing by the day, Athens accepted this month that without further financial support it would be unable to refinance €60bn of maturing debt. With Greece effectively locked out of international capital markets, Strauss-Khan had been a strong proponent of throwing the nation a second financial lifeline to stave off economic collapse.

The IMF, which extended almost $92bn (£57bn) in emergency loans last year, said it remained "fully functioning and operational" following the arrest of its chairman. John Lipsky, the IMF's first deputy managing director is its acting head. Mr Lipsky, who announced last Thursday that he would step down in August, on Sunday held an emergency board meeting in Washington.

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