Europe seeks bailout deals despite IMF head arrest

By Pan Pylas

Associated Press

Published: Monday, May 16 2011 12:00 a.m. MDT

LONDON — European ministers will hammer out the final details of Portugal's bailout and discuss more help for Greece on Monday at a meeting overshadowed by the arrest of the International Monetary Fund's managing director Dominique Strauss-Kahn.

The prevailing view in the markets is that Strauss-Kahn's arrest in New York on charges he sexually assaulted a hotel maid is unlikely to derail Portugal's €78 billion ($111 billion) bailout or affect talks on whether to give Greece more help beyond its current €110 billion rescue.

"We doubt his arrest will change the course of negotiations," Derek Halpenny, European head of global currency research at The Bank of Tokyo-Mitsubishi UFJ, said of Strauss-Kahn. "The key aspect of agreeing another bailout for Greece lies with the eurozone finance ministers and not the IMF."

The reaction in the markets was guarded, with the euro trading 0.3 percent higher at $1.4119 in late-morning trading in London. Earlier, however, the single currency had fallen as low as $1.4046, its lowest level since March 29.

Strauss-Kahn had been due to join the European finance ministers over the coming two days after a scheduled meeting Sunday with German Chancellor Angela Merkel, whose stance on Europe's debt crisis is crucial. Nemat Shafik, a deputy managing director who oversees IMF work in several EU countries, will take Strauss-Kahn's place at the Brussels get-together.

For Portugal, ministers will consider some amendments made by Finland as a condition of approving the aid despite skepticism from key political parties. They include a firmer commitment from Portugal to privatize assets to help pay for the bailout.

Discussions of Greece will likely not lead to a detailed announcement of potential new aid measures, although there is growing acceptance that last year's bailout was not enough.

Ministers won't make any firm commitments before a mission of experts currently in Athens conclude their review of the implementation of the existing program and determine how much more money the country may need in the coming years. However, Monetary Affairs Commissioner Olli Rehn and the President of the European Central Bank Jean-Claude Trichet were expected to brief ministers on the initial findings of the review.

The euro members, notably Germany, have contributed the lion's share of Europe's bailouts to Greece and Ireland and the upcoming Portuguese handout. Though the IMF has also stumped up billions of euros — it provides around a third of the bailout funds — its main purpose has been in giving the austerity programs credibility. Strauss-Kahn has been a key advocate of the strategy.

The IMF has named John Lipsky, Strauss-Kahn's deputy, as acting leader and said it remains "fully functioning and operational" despite Saturday's arrest of its managing director. Strauss-Kahn is due to appear in court later Monday for formal charging following medical and forensic tests.

Amadeu Altafaj Tadio, spokesman of the EU's Rehn, sought to dampen any fears that Strauss-Kahn's arrest would have a major impact on the crucial discussions

"I see no reason to have any doubt about the continuity of the efforts,"Altafaj-Tardio said when asked whether Strauss-Kahn's arrest would have any impact on the EU's and the IMF's efforts to fight the European debt crisis.

About John Lipsky he said he is "a skillful man" who "has a very strong knowledge of Europe."

In the longer-term, analysts said, the arrest of Strauss-Kahn could trigger an overhaul at the Washington DC-based fund, not least whether it will continue to be headed by a European, as it has been since its creation after World War II.

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