What Kahn We Do Now?

Now ex-IMF Managing Director Dominique Strauss-Kahn was probably sipping his Bling H20 just hours before he got thrown into prison at Rikers Island. Talk about hitting rock-bottom, huh? Although his request for bail has already been approved, the drama surrounding his arrest is still far from being over, very far.

Let me tell you how one man’s arrest could change France, the Euro Zone, and the global economy.

Monsieur President no more?

Known to his homies as DSK, Dominique Strauss-Kahn was seen as the French opposition’s number one bet in defeating current president Nicholas Sarkozy in the 2012 presidential elections. Recent polls showed that he was among the favorites while Sarkozy’s popularity seemed to have waned like Charlie Sheen’s antics.

IMF managing director candidates

However, after the allegations of sexual assault filed against him, most political analysts don’t expect that the Socialists will still choose DSK as their standard-bearer. They will have to go through dozens of resumes again in search of another worthy candidate.

Sigh. It’s just sad though. With Strauss-Kahn’s track record at the IMF (International Monetary Fund), it is said that they had their best chance in winning the presidency for the first time in 24 years.

Greeks: “We Kahn’t do it without you!”

The timing of DSK’s arrest couldn’t have been any worse! He was supposed to meet up with German Chancellor Angela Merkel on Sunday and the EU finance ministers on Monday to talk about their options for Greece.

We all know the story. Greece’s debt is seen to come in at 159% of its GDP next year. A few market junkies did the math and said that the government will have to print a 10% budget surplus to keep the country’s debt from ballooning. FYI, that’s ridiculously hard to do!

Now the government is asking more time and money to straighten up its balance sheet. Of course, it’s no secret that a lot of euro zone members (*cough* Germany *cough*) aren’t happy with that idea. The Greeks are worried that without Strauss-Kahn’s slick diplomatic skillz they may end up restructuring their debt.

Word on the FX hood is that DSK was more inclined to loaning Greece another 25 to 30 billion EUR and implementing more budget cuts in order to cover its financing gap for 2012, rather than having it restructure its debt. Yeah, it doesn’t seem like the most rational thing to do considering that Greece has missed its deficit targets. It’s as if officials are just keeping their fingers crossed and hoping for the best!

But being the politician that he is, Strauss-Kahn always took into account the ECB‘s strong resistance against the idea of a debt restructuring. Now that he’s out of the picture though, that’s one less peacemaker between those who want Greece to just restructure its debt and those who don’t.

And it looks like tensions are already running high between the EZ leaders and the ECB. From what I’ve heard, the usually calm, cool, and collected ECB President Jean-Claude Trichet walked out of a meeting when Greek debt restructuring was brought up. Uh-oh…

Wrestling at the IMF

A couple of days after his arrest, Strauss-Kahn filed for resignation from the IMF, leaving the top post wide open. Not surprisingly, dudes and dudettes from all over the world have been scrambling to put their best foot forward, hoping get noticed by members of the IMF executive board who will nominate them for the job.

Among the candidates said to be in the running towards becoming the next boss of the IMF are: French Finance Minister Christine Lagarde, ex-Bundesbank President Axel Weber, former United Nations Development Program Administrator Kemal Dervis of Turkey, Deputy Chairperson of the Planning Commission of the Republic of India Montek Singh Ahluwalia, Mexico Central Bank Governor Agustin Carstens, and Singaporean Finance Minister Tharman Shanmugaratnam.

Once they get shortlisted, they will have to gain the majority vote of the 24-member board in order to sit on the IMF’s pedestal for a five-year term.

Getting the votes won’t be as easy as you think though. Aside from a superb resume, the candidates’ birthplaces are also now part of the criteria!

See, ever since the IMF was created along with the World Bank in 1944, a European has always lead the IMF while an American took charge of the World Bank. Overtime, this has somehow become an unspoken rule.

Leaders from emerging markets are trying to get the most out of DSK’s sudden and unexpected leave, suggesting that it’s time to break away from tradition and that a non-European should lead the institution. But Germany and France reject this idea. According to them, only a European could provide the right perspective in directing the IMF through the sovereign crisis.

So what’s next?

It seems like there’s nothing else to do but to round up all of DSK’s possible successors. The French Socialist Party still has roughly a year to groom a presidential candidate. But as for the IMF, it looks like a speedy decision is necessary. Political leaders will have to keep their cool and set aside their personal interests and choose the most qualified person for the job regardless where he or she is from. Who do you think it’s gonna be?

  • Joshua Pearce Gibson

     Unfortunately, I’m betting that the next IMF leader is going to be a European. In this time of crisis, now more than ever, the EU-centric nations are determined to prove that they have been doing it the right way.

    • Mar

      Why unfortunately?

      • Hedgehog

        Because the Eurozone will go into a death spiral faster. The wonder that is the Euro was flawed from the beginning. Eurocrats are just biting their tongue to save their fragile reputations (read: butt). If a non-Euro is in charge of IMF, think of what he or she will do. I believe the Euro will be no more. Anyway there are no dumb non-Europeans wanting to shoulder all the crap created by the Euro anyways.

  • anonymous

    it’s time to see the euro fall like michael jackson’s nose.
     

  • Hedgehog

    Only a European can understand the crisis? The way it has been handled, I beg to differ. The statement should read: “Only a European can distort the perspective of the crisis and instead of taming it, could well nurse and nurture a time bomb or epic proportion.”

    Euro below parity anyone?