Strauss-Kahn, IMF, and Europe's decline
By Chan Akya
There must be something in the water across Europe as the continent appears to
be re-enacting its 2,500-year history on multiple fronts, comfortably
compressed for the modern television audience into just a few months.
Even as the Greeks are busy dismantling the remnants of their modern
civilization through the mechanism of massive irresponsibility at all levels of
society, the Romans are busy bringing in the memories of Caligula and Nero
through the offices
of their political leaders. The Spanish are back to the fast-forward mode of
destroying their economy through the instrument of debasing their monetary
Alongside, the French appear to be attempting a curious mix of Richelieu and
Napoleon on their neighbors, while the Germans fret between the models of
Bismarck and a potential emergence of the Weimar Republic that could yet
unleash a new Hitler. The minor republics across the periphery all fret about
the sheer complexity of the political system that runs them today.
Those staying out of the euro, like the British and the Swiss, have apparently
gone back to dreaming of a time when they didn't have to deal with noisy
neighbors across the continent.
The arrest of Dominique Strauss-Kahn (DSK), managing director of the
International Monetary Fund (IMF) late on Saturday in New York, to be
subsequently charged with attempted rape and unlawful imprisonment, stands out
at first like yet another sordid story comparable with those that have involved
senior political figures around the world.
A friend joked that Monsieur Strauss-Kahn was attempting to rehearse for his
role as president of France (before the scandal it was widely expected in
France that he would trump the incumbent President Nicolas Sarkozy in next
year's elections) so as to secure adequate respect from compatriots like the
over-sexed Silvio Berlusconi of Italy and the apparently asexual Angela Merkel
It is possible that DSK was set up by the French establishment - economist
Nouriel Roubini has hinted as much in his Twitter posts - although the key
problem with that theory is also that DSK would be considered as much part of
the establishment as Sarkozy. In any event, a basic analysis of the news points
to a simple explanation; in all fairness that is not the point of this article.
The ugly sisters
Many moons ago, I wrote an article tongue in cheek "A
good use for the IMF - bail out America" (Asia Times Online, March 17,
2007), whose proposal has since actually become official policy at least for
IMF actions in regards to Europe, supposedly the superior economy to America at
the time I wrote the article.
From their inception in the post-World War II period, the IMF and the World
Bank were designed as tools of Western intervention in emerging markets that
could be padded as neutral, multilateral efforts rather than overtly of the
capitalist powers in the charged environment of the Cold War.
Part of that arrangement was to ensure that the heads of the World Bank would
always be from the United States while the IMF would be led by the Europeans,
so that pesky questions about policy could always be avoided: hence their
moniker in the minds of independent economists, as the "ugly sisters".
For those reasons alone, the IMF and World Bank indulged in orthodox lending
practices that could keep economies in straitjackets while the interests of
creditors (denominated in US dollars) were paramount. They were talking shops
that encouraged the saving nations across Asia and the Middle East to invest
their hard-earned revenues in "hard" currencies while diminishing the role and
importance of the Asian and Middle East local bond markets and currencies.
Within the organizations, the ugly sisters operate as any organization with
exclusive powers but no real accountability would be expected to - in other
words, with utter irresponsibility. It is not a coincidence in my mind that
people heading these organizations appear to come out of them with what looks
like psychological trauma. We have already seen in 2007 a scandal involving
then World Bank president Paul Wolfowitz and a companion who worked at the
The DSK case appears to show a similar lack of judgement, preceded as it was by
a very similar case involving an affair with a married woman inside the IMF.
Interestingly, the ugly sisters appear to be equal opportunity offenders - in
the sense that Wolfowitz was widely recognized as a neo-conservative, while DSK
was the archetypal French socialist.
My pet theory is that the people working in these places have an "achievement
deficit" - in the sense that any work they do cannot be visibly attributed to
anything useful in the outside world. For a range of successful men (sexual
offenders at these agencies seem to be all men) perhaps there just wasn't the
required gravitas that comes with a job well done. Hence the minds wander to
more base pursuits. A theory for sure, but also a plausible one.
Any number of economists trained by the ugly sisters went on to important roles
across emerging nations - Asia, the Middle East and Latin America. Go ahead and
read the bio section of any number of central bankers and finance ministry
professionals around the world and the magic words "xyz previously worked as a
policy director/economist/credit officer/research assistant (pick your spot) at
the IMF/WB (pick one or both)". This is exactly the kind of mind-control that
led Asian central bankers down the path of what I called "The New Imperialism",
ie to over-invest their reserves in the debt issued by governments across the
US and Europe as a measure of safety.
The other over-arching aspect of the IMF is to be seen as a credible partner to
governments across the world. From that need arises the seeming contradiction
in its reports - as recently highlighted in my article "With
friends like these..." (Asia Times Online, April 22, 2011). where the
bullish tone in its executive summary stands in stark contrast to the more
guarded tone of the actual report.
When he was detained by police, DSK was apparently aboard a plane destined for
Europe, specifically to secure an agreement with key European leaders like
Merkel ahead of a planned announcement of new deal with Greece over the
extension and fresh facilities for the country's debt, even as it failed to
meet the admittedly loose targets on fiscal consolidation set by the IMF.
Double-speak isn't anything new at the IMF, so that bit of accounting
skullduggery on Greece wasn't newsworthy by itself. What was newsworthy was the
likely extension of the Greek aid program ad infinitum (in other words a second
bailout), as long as allegations of an outright default could be avoided, as
that would be inconvenient for the IMF and the European Union to explain
properly after throwing a number of billions of euros at the problem.
Then there was the question of the 78 billion euros (US$110 billion) or so that
had to be agreed for Portugal as a bailout. Also on the agenda of Strauss-Kahn
was an agreement on the appropriate statements that politicians would make on
with (or more pertinently, against) the increasingly shrill statements coming
out of the European Central Bank that appeared to espouse a course of action
that hadn't been quite antagonistic to the debtor-friendly policies that
politicians appeared to endorse.
Reluctant participants included Finland (which recently voted against any new
bailouts) and the United Kingdom (which has its own debt problems and has
recently decided against helping any European country that requests a second
Historians have debated long and hard about the actual event that caused or at
the very least showcased the decline of the Roman civilization; indeed more
recently much confusion and arguments persist on the events that actually
caused World War I.
In my view though, the casus belli for the present day decline of Europe
would be the mere fact that a decrepit borrower (Greece) threatened to leave
the common currency and was hastily stopped by its lenders across the
continent. If that doesn't show the rot at the heart of Europe, what else does?
In that wider context, the detention of the IMF chief at the weekend is almost
a postscript for everyone except the New York hotel chamber maid who has
leveled accusations against him.
(Copyright 2011 Asia Times Online (Holdings) Ltd. All rights reserved. Please
contact us about sales, syndication and republishing.)