May 24, 2024

With Europe in Crisis, Fragile Time for I.M.F.

Sinking under a mountain of debt, Greece is on the verge of requesting more help from the European Union and the international fund. Ireland’s economic recovery from its banking crisis remains a distant prospect at best. And once an international aid deal is concluded for Portugal, the question shifts to whether Spain’s much larger and increasingly stagnant economy may need a financial lifeline.

Indeed, the most bitter twist for Dominique Strauss-Kahn is that his personal crisis comes at a time that the I.M.F.’s influence globally is at a many-decades peak, especially within Europe, his own stomping ground.

During his tenure as managing director of the fund, Mr. Strauss-Kahn is widely credited with expanding the fund’s resources after the financial crisis, improving its governance and essentially restoring its relevance by replacing orthodoxy with pragmatism.

Before being taken into custody in New York on Saturday afternoon on charges related to sexual assault, Mr. Strauss-Kahn had boarded a flight to Europe to meet the German chancellor, Angela Merkel, to discuss in detail how Europe and the I.M.F. would respond to the deteriorating economic situation in Greece.

Mr. Strauss-Kahn was known to be a powerful voice arguing that continuing austerity measures in Greece would only make the situation worse. The Greek economy has shrunk by as much as 4 percent this year from a year ago, after the international community laid out guidelines for reducing its debt, raising taxes and reining in spending.

Mr. Strauss-Kahn’s view contrasts with a harder line in northern Europe, where voters are opposed to another bailout package for Greece. Northern politicians, as a result, have pushed to exact a higher price from Greece if more money were extended.

“The Greek government is concerned that a headless I.M.F. translates into a diminished bargaining power for the Greek side,” said Yanis Varoufakis, an economics professor and blogger at the University of Athens. “Despite the official unity between the I.M.F. and the E.U. on the Greek crisis, Dominique Strauss-Kahn has consistently showed greater sympathy for the plight of George Papandreou and a better grasp than the E.U. of the importance of not putting more pressure on Greece than the country can bear.”

Trailing after Hungary, Latvia and Iceland, Greece was one of the first euro zone countries to seek outside financial aid after the worldwide financial crisis. It proved to be a grand stage on which Mr. Strauss-Kahn would prove that the fund, after more than a decade of not doing much, could reinvent itself as a powerful global actor.

Former I.M.F. employees described Mr. Strauss-Kahn as a micromanager on European matters, especially on the three European bailouts that he oversaw — Ireland, Greece and Portugal.

Greek newspapers have reported recently that for many months before the Greek bailout last May, Prime Minister George Papandreou sought the counsel of Mr. Strauss-Kahn.

Mr. Strauss-Kahn, a French economist who was often cited for his deft political touch, also worked closely with Europe’s top leaders on the rescue plans, leveraging his relationships with leaders like Jean-Claude Trichet at the European Central Bank and France’s president, Nicolas Sarkozy — despite their political differences.

In restoring stature to the I.M.F., Mr. Strauss-Kahn managed to push his personal missteps into the background, including a 2008 affair with a co-worker at the fund, after which he acknowledged he had shown bad judgment. His success also allowed people to look past some inherent contradictions: a French socialist dedicated to solving global economic problems even as he favored the high life of elegant homes in Paris and Washington, fancy cars and lavish hotel rooms.

Simon Johnson, the former chief economist of the I.M.F., who is now a professor at M.I.T., said Mr. Strauss-Kahn had been revived by the global financial crisis. “The Europeans had been late in waking up to the economic problems,” he said. “But he coaxed rather than bullied them into action. In so doing, he used the crisis as an opportunity to rehabilitate the I.M.F.’s reputation, and put it front and center in a way that it had not been before.”

Indeed, finding someone with the kind of boardroom muscle in Europe that Mr. Strauss-Kahn displayed will be challenging.

Graham Bowley and Dan Bilefsky contributed reporting from New York.

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