IMF Head's Arrest May Stall Europe's Debt Talks

The Wall Street Journal reports:

The arrest of Dominique Strauss-Kahn, head of the International Monetary Fund, on attempted rape charges complicates European debt bailout negotiations and raises questions about who will eventually get the top job at the fund.

Guilty or not, former and current IMF officials say they expect Mr. Strauss-Kahn, also a presidential hopeful in France, to step aside because of the gravity of the charges. He can't continue his work on the European debt crisis while in custody in New York.

Because of the arrest, Mr. Strauss-Kahn was unable to hold an important meeting Sunday on Europe's debt problems with German Chancellor Angela Merkel. He was expected to miss a second meeting on the issue with European finance ministers set for Monday and Tuesday.

The incident couldn't have come at a more inopportune time. Mr. Strauss-Kahn has played a key role in coordinating the joint response to the emergency bailouts of Greece, Ireland and now Portugal from their sovereign-debt crises. Greece is in renewed crisis, and many economists expect a restructured rescue package for the country. The IMF committed just over a quarter of the €110 billion ($155 billion) in aid to Greece, and has said it will put up one-third of a proposed €78 billion rescue package for Portugal.

European officials said they had been ready for Mr. Strauss-Kahn to arrive in Brussels on Monday and urge European Union governments to commit to a further slab of bailout money to tide Greece over for 2012 and 2013—and for him to suggest that further IMF help would depend on such a commitment.

"This is going to make things more difficult in terms of Greece," said a ranking IMF official who is closely following the negotiations with Athens. Although the outcome may ultimately be the same, given pressures from European and U.S. officials wanting to avoid contagion, the official said, "it could delay action."