International Monetary Fund chief Dominique Strauss-Kahn faced arraignment Monday for alleged sex crimes that have threatened to derail the career of one of the world’s most powerful economists, who many have said was the prime potential contender for the French presidential seat against Nicolas Sarkozy. Strauss-Kahn, who was arrested Sunday in New York City, was charged with sexual assault against his

International Monetary Fund)

Strauss-Kahn’s lawyers claimed Monday their defendant has an alibi. France’s RMC radio quoted the lawyers as saying the IMF chief was on his way to eat with his daughter when the alleged assault took place.

These accusations could not have come at a worse time for Strauss-Kahn or for the European economy. The IMF is in the process of determining what to do about Greece’s ever worsening debt crisis. The IMF played a critical role in saving the European Union from total economic collapse in the past several years. However, the 110 billion euro bailout of Greece over a year ago has been seen as a failure, and the country is teetering on the edge of bankruptcy. There were rumors that Greece would even leave the Euro, but those statements have been denied. Standard and Poor’s rating agency has once again downgraded Greece’s credit rating.

Portugal, which suffers from similar fiscal troubles, has given the IMF its S.O.S., as well. European bailout talks have continued despite the absence of Strauss-Kahn.

As The Wall Street Journal reports, Strauss-Kahn is likely to step down from his post even if he is cleared of charges, and this will throw a wrench in the European economic situation:

European officials said they had been ready for Mr. Strauss-Kahn to arrive in Brussels on Monday and urge European Union governments to commit to a further slab of bailout money to tide Greece over for 2012 and 2013—and for him to suggest that further IMF help would depend on such a commitment.

"This is going to make things more difficult in terms of Greece," said a ranking IMF official who is closely following the negotiations with Athens. Although the outcome may ultimately be the same, given pressures from European and U.S. officials wanting to avoid contagion, the official said, "it could delay action."

As Time magazine noted in its 2010 TIME 100 issue, the International Monetary Fund was seen by some as obsolete before the Great Recession put the world economy on the brink of collapse. Newsweek came close to crediting Strauss-Kahn with “saving the world” in a 2010 article.

Such talk of heightened importance set up Strauss-Kahn as the most likely successor to unpopular French President Nicolas Sarkozy. The Economist posited recently he would declare candidacy as early as late May or early June.

Conspiracy theories have already popped up over the origins of the scandal, with some making unsubstantiated claims that the sex abuse story was planted by Sarkozy supporters.

On the Daily Beast, Christopher Dickey elaborates on how the scandal has changed French politics overnight:

The impact of the incident on French politics is hard to overstate. Strauss-Kahn has long been one of the leading figures in the French Socialist Party, and when he accepted the IMF job in 2007, with support from the newly elected Sarkozy, many considered the move a Machiavellian masterstroke by the president that would get Strauss-Kahn out of the way. But rough economic times and the French public’s growing dislike of the diminutive Sarkozy’s tough-guy personality (sometimes likened to the actor Joe Pesci in his gangster roles) has pushed the president’s approval ratings south of 30 percent. At the same time, the world financial crisis put the IMF and its head at center stage in global affairs.

The Daily Telegraph, which has been closely following the issue, called the controversy “unprecedented” – mainly because it would be the first time a French political career would be torpedoed by a sexual scandal. The article quotes Strauss-Kahn’s biographer as saying “[he] is well-known as a seducer… I can’t believe he would force himself on an unwilling woman. That doesn’t make sense.” The author adds: “Such a statement would come across as damning in most Western countries. In France, it is seen as a spirited defence.”

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