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Fallout from DSK arrest

May 18, 2011

The arrest of IMF chief Dominique Strauss-Kahn on charges of sexual assault this past weekend in New York City for obvious reasons dominated the international headlines. Without going into the details surrounding the case and the personal repercussions for Strauss-Kahn, it is interesting to speculate about some of the potential political fallout from this incident. The first arena where this fallout might be felt is in negotiations over future EU financial reform. The IMF has played a key role, along with the EU, in the Greek, Irish, and Portuguese rescue packages, providing up to 1/3 of the funds. Strauss-Kahn was set to meet with EU finance ministers on Monday to discuss these issues. At the meeting, ministers went ahead and approved a 78 billion Euro package for Portugal, but the question of how to proceed regarding Greece proved to be far more contentious. The main axis of contention revolves around whether to allow some sort of restructuring of Greece’s plan. This ‘soft restructuring’ “is understood to involve extending repayment schedules and easing interest rates on the debt,” according to Yahoo News. The European Central Bank has thus far taken the toughest stance against the possibility of any kind of restructuring, insisting that it would decrease confidence in the Euro and fail to improve Greece’s fiscal situation. Some EU finance ministers at Monday’s meeting, however, sounded open to the idea, providing Greece undertakes necessary reforms, such as privatizing state assets and improving tax collection.

The other major effect of the Straus-Kahn affair pertains to French presidential politics. DSK had been considered the leading contender to garner the Socialist Party nomination and challenge incumbent president Nicolas Sarkozy, who is suffering from record low approval ratings. Although the election is not to be held until Spring 2012, the Socialist Party will hold its nominating convention at the end of June, so the arrest might have effectively destroyed Strauss-Kahn’s chances. Whether this will be a boost to Sarkozy is uncertain; a recent poll showed that even Francois Hollande, another leading French socialist, would also beat the incumbent president were he to get the nomination. Anne Applebaum, on the other hand, speculates that the biggest beneficiary of Strauss-Kahn’s exit could be Marine Le Pen, leader of the far-right National Front. This is obviously all pure speculation at this point, but these these developments will be interesting to follow, and we will try to provide updates as they occur.

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