Strauss-Kahn sex arrest complicates Greek bailout No.2

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Dominique Strauss-Kahn's arrest on sexual assault charges risks further complicating efforts to fix a second Greek bailout and resolve the eurozone debt crisis, moves towards which the IMF chief was particularly active.

Strauss-Kahn was to have met German Chancellor Angela Merkel on Sunday to address the issues that have topped his in-tray at the International Monetary Fund ahead of talks between European finance ministers in Brussels on Monday and Tuesday.

Quite apart from the impact on his travel plans or a bid for the French presidency next year, the accusations of rape on a hotel chambermaid seriously threaten his position at the head of the IMF.

"This comes at a bad time for the eurozone," said an EU diplomat on Sunday, with speculation likely to dominate the corridors of the Brussels talks at which the terms behind Portugal's 78-billion-euro EU-IMF bailout will nevertheless be signed off.

The IMF however insists the work of the world lender of last resort goes on while the judicial process unfolds in New York.

The former Socialist French finance minister has played a pivotal role over the past 18 months in negotiations seeking to ring-fence the decade-old euro currency by shoring up black holes in the finances of Greece, Ireland and Portugal.

A strong backer from the off, Strauss-Kahn lobbied discreetly for the policy response taken by the EU, pushing economic reform alongside the setting up of a permanent rescue fund which threatened in some eyes to pre-sage a formal system of fiscal transfers.

The IMF is behind one third of the monies already pumped in or set aside for Greece (some 35 billion), Ireland (around 20) and Portugal (25).

The extent to which the eurozone crisis has dominated Strauss-Kahn's focus was recently queried by the United States, Canada and other major emerging economies, when other parts of the world also need attention, diplomats also say.

IMF officials are currently in Athens alongside EU experts examining Greek efforts to improve their public finances and a report due at the beginning of June will determine the scale and scope of a second bailout likely to run into tens of billions more.

The IMF has pushed Greece to sell off more of the family silver as a pre-condition.

After being pressed repeatedly to rule out a second, EU-wide bailout, French Finance Minister Christine Lagarde told the BBC on Thursday night that ‘the consideration at the moment is to extend’ an existing framework of bilateral loans.

Ireland's calls for eased terms on the interest demanded under its EU-IMF bailout, already strongly resisted by France, are likely to fall off the Brussels agenda.

The European ministers are though set to anoint Italian central bank governor Mario Draghi as the successor to France's Jean-Claude Trichet as president of the European Central Bank.