IMF chief's arrest unnerves investors

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IMF chief's arrest unnerves investors

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Europe’s financial markets dived as soon as they opened on Monday with analysts citing the IMF chief’s arrest at the weekend as a factor, but the main focus was on the EU finance ministers meeting and the euro zone debt crisis.

In Frankfurt market watcher Oliver Roth of Close Brothers Seydler Bank said he does not expect big policy changes at the IMF: “There won’t be any long-term impact, because the IMF is a working institution. There will certainly be a caretaker managing director who will take over from him and, probably, will work along the very same lines.”

For the moment Strauss-Kahn’s deputy, American John Lipsky, will cover the top job but Lipsky is due to step down in August.

So the global financial institution faces a potential leadership vacuum at a crucial time.

Eric Chaney of AXA Investment Management said: “The role of the IMF is extremely important and I believe that the personal role of Dominique Strauss-Kahn is, or was, maybe we should say, very important because he knows everybody and he’s a very good deal maker between people who often have diverging positions.”

Strauss-Kahn has had a very ‘hands on’ role with the Greek bailout and his arrest raises questions over the status of aid to Greece and Europe’s other debt-laden countries.

In Portugal trader Pedro Olivera of said: “The market opened with a very strong loss in today’s session, with a drop of around one percent, not only because of the news of the arrest of the IMF director, which is putting pressure on the market, but also because of the problems with Greek debt.”

And with Strauss-Kahn sidelined, the IMF may be less inclined to keep on bankrolling Greece without significant policy changes by the Athens government.