Economic and Political Fallout after Strauss-Kahn's Arrest

Rape allegations against IMF head throw international community into confusion

News that Dominique Strauss-Kahn, head of the International Monetary Fund, was arrested yesterday for allegedly sexually assaulting a hotel maid in New York was met with world-wide shock. While shifting details continue to emerge regarding the allegations, what is clear is this: the New York Police Department arrested Strauss-Kahn “on charges of criminal sexual act, attempted rape, and an unlawful imprisonment in connection with a sexual assault on a 32-year-old chambermaid in the luxury suite of a Midtown Manhattan hotel yesterday,” the department’s chief spokesman said to the New York Times.

The news has thrown the international community into disarray as Strauss-Kahn's many political and economic allies struggle to account for their losses.

Political Fallout. "The impact of the incident on French politics is hard to overstate," wrote Christopher Dickey for the Daily Beast. Strauss-Kahn was one of the leading figures of the French Socialist Party, and there was vast speculation that he would quit his job at the IMF in Washington to oppose, and likely defeat, the deeply unpopular President Nicolas Sarkozy.

The leader of Strauss-Kahn's party, Martine Aubry, said she was “stupefied” by the news and called for an emergency meeting of party leaders for Monday, according to the Times. Although Strauss-Kahn's attorney Benjamin Brafman told the Times that he will plead not guilty, even if he is successful it is unlikely he will return to France anytime soon. Presidential elections are scheduled for next April and May, and Strauss-Kahn was expected to declare his candidacy in June.

Members of opposing parties have been quick to judge. “He’s definitely discredited,” said Marine Le Pen, leader of the far-right party National Front. “The case and the charges mark the end of his campaign for the presidency, and will likely prompt the IMF to ask him to leave his post.” And Bernard Debré, a lawmaker in Sarkozy’s center-right UMP party, told French television that the arrest was “a humiliation and an affront to the honor of France." He added that Strauss-Kahn's political career “must be ended — he will be condemned.”

Economic fallout. The arrest has also jeopardized Strauss-Kahn's leadership at the IMF, which may yet more serious ramifications.  The IMF issued a terse statement in response to the arrest, which Henry Blodget at Business Insider characterized as "IMF Throws Dominique Strauss-Kahn Under The Bus."

IMF Managing Director Strauss-Kahn was arrested in New York City. Mr. Strauss-Kahn has retained legal counsel, and the IMF has no comment on the case; all inquiries will be referred to his personal lawyer and to the local authorities.

The IMF remains fully functioning and operational.

The French blog Atlantico, according to Business Insider, indicated that Strauss-Kahn will resign as managing director today. Eswar Shanker Prasad, an international economics professor at Cornell University, speculated on the economic implications to The Washington Post:

This sordid episode — no matter how it ultimately plays out — will spell the end of Strauss-Kahn as an effective leader of the IMF even if he retains his position, which is highly unlikely... Additional uncertainty is the last thing that Europe needs right now, but that will be the reality as the IMF absorbs this body blow and reorients itself to a post-Strauss-Kahn era.

More specifically, Guardian reports that Strauss-Khan had been a strong proponent of offering Greece a second financial lifeline to stave off economic collapse. According to Louka Katseli, Greece's minister of labour and social security, Strauss-Kahn's arrest "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."

Conspiracy Theories. There is no better evidence of the impact of an event than it's ability to launch conspiracy theories. On French television this morning there was already talk that Strauss-Kahn had been set up. Christine Boutin, head of France's Christian Democratic party, said, “I really believe that somebody set a trap for Dominique Strauss-Kahn to fall into... That he could be taken in like that seems astounding, so he must have been trapped.”

Another French law enforcement source who knows Strauss-Kahn told the Daily Beast that while he may “have an issue with his penis, he never forces anybody. He is much more romantic than that. So this whole aspect needs to be given a lot of attention.”

Attention, at least, is guaranteed.