Dominique Strauss-Kahn, the disgraced former managing director of the International Monetary Fund and onetime French presidential hopeful, has a progressive plan for the Greek debt crisis that includes significant debt relief -- a concept the country's creditors appear increasingly willing to accept.
The plan, which Strauss-Kahn released on Twitter, would allow Greece to postpone all debt repayments for two years but withhold additional financing for the cash-strapped nation. This would allow Greece more flexibility to recover by keeping cash flowing into its economy, but also keep pressure on its government to continue tightening its budget, Strauss-Kahn argued. After two years, if Greece completes the fiscal reforms, it would become eligible for more debt relief, including a significant write-down.
“Insisting on a frontloaded fiscal adjustment in the current economic environment is both economically and politically irresponsible,” Strauss-Kahn said in the plan, released June 27. “Providing more assistance to simply repay existing official creditors is simply inane.”
In addition, unlike Greece's creditors, Strauss-Kahn wants to give Greece latitude to balance its budget as it wishes. He even singled out "collecting taxes and confronting the oligarchy" as potential areas of progress. The IMF and eurozone creditors have thus far vetoed major tax increases on the rich, insisting on major pension cuts and value-added tax increases instead.
Strauss-Kahn’s plan may yet resemble the final deal between Greece and its creditors. Proposals for debt relief are gaining momentum after the country rejected a bailout-for-austerity proposal in a nationwide referendum July 5. The Greek government submitted a new bailout proposal to creditors Thursday night. While its details are unknown, previously resistant senior eurozone officials signaled that a deal would likely include debt restructuring. German finance minister Wolfgang Schaeuble, widely considered one of Greece’s most hardline critics, conceded Thursday that Greece needs debt relief, while nonetheless claiming that European Union rules preclude it.
The IMF pushed for debt relief for Greece in a June 26 report, a position that its managing director, Christine Lagarde, reiterated Wednesday in a speech in Washington, D.C.
But Strauss-Kahn's plan for Greece went further, faulting the IMF’s approach to the European crisis under his leadership. The IMF “did make some mistakes and I am ready to take my share of responsibility for them,” he wrote. Specifically, the IMF “misdiagnosed the Greek problem” as a budget imbalance, rather than the consequence of the lack of a fiscal and banking union within the eurozone, he explained. Instead, Strauss-Kahn argued, the IMF should have directed its recommendations for reform at all eurozone countries, not just Greece, and “leaned against” eurozone leaders’ tight fiscal and monetary policies since the economic downturn.
Strauss-Kahn’s views reflect the consensus among a broad array of economists that interest rate increases by the European Central Bank and European leaders’ insistence on immediate spending cuts and tax increases have both devastated the Greek economy and stalled the European recovery more broadly.
Still, Strauss-Kahn stopped short of disowning the entire loans-for-austerity regime implemented by the eurozone and the IMF, crediting the fiscal contraction demanded by Greece’s creditors with bringing the country's budget close to a surplus.
While some experts credit Strauss-Kahn with moving the IMF’s research department away from neoliberal orthodoxy and more toward the economic mainstream during his 2007-2011 tenure, these reforms failed to reach the IMF’s lending arm, they argue.
It is not clear how seriously Strauss-Kahn’s most recent recommendations have been taken in policymaking circles since he stepped down amid a string of sexual scandals. He was acquitted of aggravated pimping charges on June 12. Strauss-Kahn admitted to participating in sex parties, but said he was not involved in organizing the parties nor aware that there were prostitutes present. The pimping trial came on the heels of explosive rape charges in 2011, from which Strauss-Kahn's career has never truly recovered, despite his acquittal. In May of that year, after being arrested and accused of raping a hotel maid, he resigned his post at the IMF. After the incident, other women came forward describing harassment and abuse by Strauss-Kahn.
The scandal dashed hopes that Strauss-Kahn -- commonly known in France by his initials, DSK -- would run as the socialist party candidate in the 2012 presidential elections. Polls at the time showed him as a likely winner in the race to unseat then-president Nicolas Sarkozy.
Just weeks after his acquittal, however, Strauss-Kahn is once again being spoken of as a possible presidential candidate in France’s 2017 elections. A recent poll shows that 37 percent of French people would support his candidacy.
He started a Twitter account June 22 and has since amassed more than 56,000 followers.