DSK and the Euro

by Steven F. Hayward

Like most folks, I’d never heard of Dominique Strauss-Kahn before last weekend, though of course I am passingly familiar with the International Monetary Fund (IMF). Although the sex angle is naturally irresistible, it seems to me most news stories about this episode are burying the lede. Deep in most stories is the “oh-by-the-way” bit about how Strauss-Kahn’s legal difficulties come at a crucial moment in the quest for the stabilization of the Euro and the resolution of the Greek debt crisis. He is suggested as the indispensable man, and the IMF as the crucial institution.

Hold on a minute here. I thought the IMF was chiefly intended as a rescue mechanism (with necessary coercive powers) for insolvent second-tier nations like Argentina or Indonesia in the late 1990s. Why does the Euro, supposedly the powerful rival to the U.S. dollar, need IMF support any longer? (I get how the IMF helped Europe back in the early days after World War II, a story told well in Norman Stone’s terrific book, The Atlantic and Its Enemies, which I reviewed in NRODT last year. But that was then . . . ) Of course, I know the Euro is a currency built on an unstable foundation of asymmetric national economies within the EU, but why isn’t the European Union itself grown up enough to look after the fate of the Euro? Are the Eurocrats in Brussels so weak that they need the IMF’s Third World treatment to rescue their fiscal house of cards?  

The subtext to all of this is that things in the Eurozone are worse than we thought.