Strauss-Kahn: how it will make a difference to the bailouts
The IMF exists to do, above all else, two things: raise money from governments and lend it to other governments while extracting structural reforms in return.
Ten years ago the Fund stood accused of doing that in a way that - during the 1980s and 90s - actually increased poverty in the developing world, blighting the lives of millions of people; and then in the Asian crisis - imposing solutions that harmed the people there - Thailand, Malaysia, Indonesia - but directly benefited the USA.
Then there was a big change in international thinking and the first test of it was the financial crisis of 2008.
During that crisis DS-K did the following:
- he raised so much money there was at one point too much of it
- he brought China, India and Brazil and Russia closer to the decision making centre
- long before it moved to save Greece, Ireland and Portugal the Fund had bailed out Hungary, Ukraine...
- threw the IMF's weight behind multilateral re-regulation of finance; so the IMF was a key voice in all the G20 summits where they co-ordinated bank bailouts and fiscal stimulus...
Through it all, it's fair to say that Strauss-Kahn's IMF demanded less outright structural reform; was less ideological; and with some countries was lenient to the point startling those who knew the Fund of old.
I would also add that, with DS-K's encouragement, the Fund's economists became some of the biggest alarm-ringers about the global slump, and advocates of co-ordinated fiscal stimulus, at a time when domestic politicians were pretty blase about it and some even advocating pro-cyclical "let it rip" approaches that would have plunged us well and truly into a 30s style denoument.
So how will the incapacitation of DSK - tonight denied bail in New York - affect the current round of bailouts? Quite simply it will deprive the pro-leniency faction in Europe of an ally.
The IMF leadership is already hollowed out; the current deputy has announced his departure date this year some of the new MDs are not quite in position.
From Ireland to Greece to Portugal - what you always hear from politicians, on the edge of these fraught negotiations in soul-draining posh hotels is: we'd rather be bailed out by the IMF than by the EU and the IMFcombined. The IMF's economists are basically seen like the classic British Army sergeant: "tough but fair". Not so the EU, whose response has become increasingly politicised.
Right now the country that could bring the bailout plans crashing down is Greece. It wants a second bailout valued at 50bn and many commentators, and almost all investors (but no politicians) believe it will eventually go for a partial default on its debts.
There's a joint EU/IMF fact finding delegation there, and while the EU governments response to that report will now be seen as highly political - they've all got right wing parties on their backs demanding tough conditions - the IMF will be less tough.
Strauss-Kahn's role would have been to moderate that.
I've no doubt that at his meeting with Merkel, postponed indefinitely now, he's likely to have said: look Angela, don't make the Greeks eat more dirt than they have to or you'll cause a revolution.
In this, despite the political rivalries with Sarkozy, his position mirrored that of the French - to insist on toughness but to play realpolitik across the whole continent (Frau Merkel does not currently seem capable of playing it even in Baden Wurttemberg, despite it being a German word).
The danger is, not so much without DS-K but without a firm IMF, north Europe imposes such a high price on southern Europe for the next round of bailouts that the solidarity cracks.
While everyone is obsessing about the "European ownership" issue of the IMF top job (it always goes to a European), I think it's more significant that DS-K was the first active social-democrat politico to run the Fund in modern times: its economics department, its expanded agenda to take in global financial stability and the reshaping of the global balance of power reflected that.
Of course there is a huge dynamic now unfolding in French politics now, as well - and the legal drama is riveting. We'll explore some of that on Newsnight, tonight.