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IMF Chief Waits for Bailout—The Irony

May 18, 2011 by · Leave a Comment 

COMMENTARY—Prospectingjournal.com—What happens when the man responsible for your bailout needs a bailout? This is the current irony sweeping through Greece and the Eurozone, as the recent arrest of the man behind the EU bailouts toyed with the euro, frightened traders and reignited debate on international currency markets.

Known as the “sheriff” behind Greece’s bailout, IMF head Dominique Strauss-Kahn must now feel as isolated as the current Greek banks, who are themselves lost in a lonely prison of debt-reliance. Strauss-Khan’s charismatic and focused leadership in the recession-weary IMF has been replaced with doubt and conflicting views among his colleagues. His hopes for a presidential running in France, a country that’s quite accepting of sex scandals, likely disappeared in a Manhattan hotel.

A decapitated IMF couldn’t come at a worse time. Though it has since rebounded, the 17-nation euro currency dropped to a seven-week low against the dollar over concerns on Tuesday’s finance ministers meeting in Brussels. According to Bloomberg, the euro has dropped against 10 of its 16 major counterparts in a decline of 1.1 per cent over the past month, with the yen up 4.5 per cent and the US dollar up 1.5 per cent. Traders’ uncertainty also pushed the FTSE 100 down 52.49 points on Monday, while Bourses in France and Germany fell 1.4% and 1.3%, respectively. If it wasn’t clear before (though I’m sure it was), it is now: Europe’s debt crisis is killing the euro.

Take the recent finance ministers’ meeting, once an organized and productive practice on fiscal EU management. The meeting focused on the financial troubles of Greece, Portugal and other “PIIGS” nations, but was overshadowed with the Strauss-Khan debate. Besides adding some legitimacy for the IMF, this leadership concern reflects a growing awareness that a lack of strong leadership is tearing the EU apart, as debt pressures fuel nationalist fervor among the wealthy and poor nations alike. Thankfully for Portugal, a formal agreement on the $112 billion bailout managed to squeeze through, though almost fell prey to the doubts of a growing number of Finnish nationals.

Germany demands pain for Greece, Portugal is wiping the sweat off its brow, Spain is nervous, China and Brazil are asking about the upcoming IMF “vacancy”—things are getting dicey. Everyone seems to agree that Greece’s exit from the EU would be catastrophic, yet an IMF without Strauss-Khan is less likely to prevent a failed Greece. American John Lipsky, former Deputy Manager of the IMF, is currently holding down the fort, but is reluctant to push an ambitious agenda for EU debt issues as he plans to resign. German Chancellor Angela Merkel is adamant that the leader remain European yet China wants to know why, as emerging countries—the growing economic lifeline in the current turmoil—demand a decentralized IMF.

So does it take a failing euro to help out the US dollar? EU leaders have acknowledge that a restructuring of Greece’s debt, at 150 per cent of GDP, might be required, but the world seems more focused on the rape scandal instead of the big picture. The euro is weakening, the US dollar is lagging, and Europe’s debt problems seem to be waiting for a decision regarding a man who may or may not have raped a woman. Just goes to show: markets are affected by a vast array of variables, beyond tsunamis and US wars. The Greek tragedy continues.

Chris Devauld
Senior Writer

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