IMF Chief’s Arrest Could Mean Harsher Bailout for Greece

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ZURICH, SWITZERLAND - MAY 10: International Monetary Fund Managing Director Dominique Strauss-Kahn leaves the Second Annual Conference of International Monetary Fund held at the Baur au Lac Hotel on May 10, 2011 in Zurich, Switzerland. The conference hosted by the Swiss National Bank (SNB) and the International Monetary Fund (IMF), brought together central bank governors and senior policymakers, to debat about the reform of the international monetary system with topics such as global liquidity p

The arrest of Dominique Strauss-Kahn may mean the next bailout program for Greece will be more onerous.

Strauss-Kahn, who has run the International Monetary Fund since 2007, was arrested on sexual assault charges on Saturday. He was scheduled to be meeting with European financial officials today in Brussels to discuss measures to support Greece.

Strauss-Kahn has supported more generous bailout packages that require less local austerity than those favored by the German government, for instance. His diplomatic skills are said to be of such high quality that economist Simon Johnson referred to him as "Metternich with a BlackBerry," referring to the 19th century Austrian diplomat who helped secure European stability in the wake of the Napoleonic wars.

During Europe's sovereign debt crisis, Strauss-Kahn has helped pull a reluctant Angela Merkel, the German leader, into supporting bailout measures. He was expected to take the lead in pushing for less severe terms in the meetings this week in Brussels.

Without Strauss-Kahn around, the odds increase for a bailout that requires tighter austerity measures and perhaps would depend on Greece’s creditors voluntarily extending the maturity of Greek debt coming due. The bailouts have been deeply unpopular with the German public, which tends to seem them as rewarding financial irresponsibility.

While the IMF no doubt has a capable staff that can operate in the absence of Strauss-Kahn, the case of Metternich is a good reminder that personal chemistry and diplomatic skills can strongly effect the outcomes of these big international meetings.

Last year the IMF put up a third of the EUR750 billion euro-zone bailout fund.

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