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Arrest casts shadow over EU crisis talks

Brussels - The storm over the IMF chief's sex assault case threw a giant cloud on Monday over a European finance ministers' meeting aimed at easing the euro debt crisis and considering a new bail-out for Greece.

Dominique Strauss-Kahn, who has played a key role in striving to tame Europe's debt crisis, had been due at the talks that start from 15:00.

Replaced by his number two John Lipsky as acting International Monetary Fund chief as he battles to clear his name, Strauss-Kahn's arrest - just as he was leaving to meet German Chancellor Angela Merkel - saw the euro wobble badly before recovering in Asian trade.

"For a few days at least, the market will likely suspect leadership paralysis at the IMF," Gareth Berry, currency strategist at UBS, told Dow Jones Newswires.

"The euro has most to lose from this, given the IMF is now active or becoming active in three eurozone countries."

The IMF is pumping in one euro for every two put up by European Union governments in the three bailouts already agreed over the past year: €110bn for Greece, €67.5bn of international money for Ireland and €78bn for Portugal, set for EU endorsement during talks carrying on into Tuesday.

As the fund's executive board rescheduled talks on the way forward without Strauss-Kahn for later Monday, the scandal may also reopen friction within the 187-member IMF over the extent to which the eurozone crisis dominated Strauss-Kahn's focus.

The US, Canada and other major emerging economies have recently queried the energy expended on Europe's problems, when other parts of the world also need attention.

But as trade unions simultaneously gathering in Athens warn that Greek austerity is not working, with a severe recession hampering efforts to stabilise the country, the black hole in Greece's finances remains the most pressing issue for ministers around the table in Brussels.

Speculation has mounted in recent days that Greece will need an additional €60bn over the next two years as it won't be able to return to commercial money markets next year as expected to refinance its debt.

German Finance Minister Wolfgang Schaeuble said on Sunday Greece could be granted an extension to the repayment of the EU-IMF loans, but only if private creditors also agree to wait longer in the hope of getting all their money back.

Greece's overall state debts were last tallied at €330bn, more than a year and a half of national economic output.

EU partners are waiting for the results in early June of an IMF-led examination of Greek public accounts before deciding what new measures are required.

But if they prove necessary, Schaeuble told German television, "we must have a clear rule: if there is a rescheduling (of the debt), all credit must be rescheduled."

Turbulence

Officials from the EU and the IMF are poring over Greece's books, trying to work out how much of the family silver the Greek government needs to sell to give itself a chance of avoiding the default markets fear.

The German daily Die Welt reported on Saturday that the EU Commission, the IMF and Germany now believe that an extension to agreed repayment terms on some loans to Greece has become the least worst option.

However, the paper said the European Central Bank (ECB) and France remain opposed to any such debt restructuring.

It remains to be seen whether eurozone ministers' endorsement of Italy's Mario Draghi as the incoming president of the ECB, expected later Monday evening, could influence that stance.

Amid the turbulence created with Strauss-Kahn's arrest, Irish calls for eased terms on the interest demanded under its EU-IMF bailout, already strongly resisted by France, will have to wait, diplomats say.

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