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Europe’s leaders are playing with fire if they follow the Latvian example | Mark Weisbrot December 16, 2011

In recent months some advocates of Europe’s austerity policies have been touting Latvia as a success story that shows how “internal devaluation” can work. This was the theme of a book published earlier this year by the Peterson Institute for International Economics, one of Washington’s most influential think tanks. The book was co-authored by the Institute’s Anders Aslund and Latvia’s prime minister Valdis Dombrovskis.

The case study is relevant to Europe because there are important similarities between Latvia’s economic strategy since 2008 and that which is now being promoted by the European authorities – the European Commission, the European Central Bank, and the International Monetary Fund (IMF), otherwise known as “the troika”.

At first glance it might seem ridiculous to call an economic strategy a success if a country loses 24% of its output – the worst in the world for the crash of 2008-2009 – and official unemployment shoots up from 5.3% in 2007 to more than 20% in early 2010.

Although unemployment is now back down to 14.4%, and the economy is growing –an estimated 4% for 2011 – this is a steep price to pay for an eventual, not very rapid recovery. It’s kind of like bragging about the success of the 1929-33 downturn of the Great Depression in the United States.

But the advocates argue that Latvia was successful because it kept the country’s fixed exchange rate pegged to the euro. The argument is that if the country had tried to pursue expansionary macroeconomic policies – counter-cyclical government spending, lower interest rates, and therefore also a devaluation – the result would have been even worse than the worst decline in the world. The main idea is that the devaluation would have had devastating balance sheet effects: many households and businesses that borrowed in euros but had their income in local currency would have gone bankrupt, with catastrophic effects on the banking system, etc.

Of course it is true that there would have been serious negative consequences from a devaluation in Latvia’s circumstances, so this argument cannot be “proven” false. However, we can look at the experience of other countries that had crisis-driven devaluations and suffered these losses. For 13 countries over the last 20 years, the average loss of GDP following devaluation was 4.5% of GDP. Three years later, the average country was 6.5% above its pre-devaluation peak.

Latvia, by comparison, did not devalue, and, three years later, is still down 21% from its pre-crisis GDP.

So the argument that “it could have been much worse” does not seem plausible. Some of these other countries suffered severe financial collapses after their devaluation, such as Argentina, which was also mostly excluded from international borrowing since its devaluation and default in December 2001 and January 2002. Yet Argentina has done very well since its devaluation and default, with the economy shrinking initially by 4.9%, then growing more than 90% over the ensuing nine years. But all of these 13 countries with crisis-driven devaluations did vastly better than Latvia has done.

The social costs in Latvia were even higher than the official unemployment numbers indicate. Unemployment and underemployment – including those involuntarily working part-time or having dropped out of the labor force – peaked at more than 30% last year. And an estimated 10% of the labor force left the country – a huge emigration by any comparison, and a significant loss to Latvia.

All this unemployment and misery is not a side effect of the internal devaluation strategy, but a fundamental part of it. The idea of an internal devaluation is that, with the currency fixed, you have to push down prices and especially wages in order to make the country more competitive internationally.

This is done through a severe recession and very high unemployment. This is part of the current strategy of the troika for making Greece, Italy, Spain, Portugal, and Ireland more competitive.

Ironically, the internal devaluation in Latvia didn’t work even on its own terms. The weak recovery over the last year and a half owes little or nothing to net exports – which would be the driver of recovery if the internal devaluation actually worked, and made the country’s exports and import-competing industries more competitive.

Rather, it appears that the economy recovered because the government stopped its budget tightening after a huge economic contraction, and because there was a burst of inflation that helped the country out of its deflationary mess.

The internal devaluation in the eurozone is not working either, as the common currency area now appears to be in recession, according to the OECD’s latest estimates. The other part of the troika’s strategy – a rescue by confidence fairies in the bond markets, is doing even worse.

The bond markets seem to realize that current austerity and even agreements for more co-ordinated fiscal austerity in the future –as the European authorities announced with great fanfare last week – will only increase the eurozone’s debt burden.

Sooner or later, the European authorities will have to stop building that bridge to the 19th century, and use modern economic policy to pull the European economy out of recession. Europe cannot afford to go through what Latvia went through, and neither can the world afford it: a more severe recession in Europe could set off a financial crisis of the kind that we saw in 2008. That is the fire that the European authorities are playing with right now.

• Mark Weisbrot is co-director of the Center for Economic and Policy Research, in Washington, DC. He is also president of Just Foreign Policy

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Russia Pledges $10 Billion in Eurozone Aid

Russia says it is ready to commit more than $10 billion to the International Monetary Fund to help support the struggling eurozone economy.

President Dmitry Medvedev made the pledge Thursday in Brussels during the biannual EU-Russia summit. “We will abide by all the commitments being the participant of the International Monetary Fund, and we are ready to invest the necessary financial means to back the European economy and the euro zone. We are ready to look at and consider other measures of support,” he said.

His economic adviser, Arkady Dvorkovich, earlier said $10 billion would be the minimum commitment Russia would make.  The offer follows last week’s summit of European leaders in which nearly all EU countries pledged up to $200 billion in funds and loans to the IMF rescue fund.

Mr. Medvedev says 41 percent of Russia’s currency reserves are invested in euros, and that Russia is interested in seeing the European Union preserved as a powerful economic and political force.

“Only Europe will be able to help Europe, but other countries should provide conditions for Europe to liberate itself from the crisis burdens as soon as possible and recover from this downturn as soon as possible,” he said.

Thursday’s summit gathered EU President Herman Van Rompuy, EU Commission head Jose Manuel Barroso and Mr. Medvedev, among other officials, and comes just days after Russia’s much criticized parliamentary elections.

At a news conference after the summit, Van Rompuy criticized the vote, saying the EU is concerned about irregularities, but he welcomed Russia’s pledge to monitor future polls.

On Friday, the World Trade Organization is set to approve Russia as a member, after 18 years of trying to join.

Some information for this report was provided by AP, AFP and Reuters.

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Fed may give loans to IMF to bail out euro zone central banks: paper December 6, 2011

December 5, 2011

by legitgov


Fed may give loans to IMF to bail out euro zone central banks: paper 04 Dec 2011 The Federal Reserve, along with the 17 euro zone national central banks, may help provide the International Monetary Fund with funds that could be used to aid debt-ridden states, a German newspaper said. Die Welt cited sources close to the negotiations as saying the euro zone central banks could pay at least 100 billion euros ($134.2 billion) into a special fund that could be used for programs for nations struggling to control their debts. “Also other central banks, for example the U.S. Federal Reserve, are apparently prepared to finance a part of the costs,” the paper said in an advance copy of an article to appear on Monday. [WHY should US taxpayers -- via the (audit-or-eliminate) Federal Reserve -- bail out European banksters? This is INSANE. Start reading.]

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The IMF must heed G20 decisions | Kevin Gallagher November 30, 2011

The G20 meeting in Cannes earlier this month was derailed by the pressing eurozone crisis. Actors were disappointed if they were looking for concrete action on global imbalances and the food crisis, let alone the new global monetary system that French President Nicolas Sarkozy boasted would be the goal of the summit when he first took the helm as host. But behind the scenes, the G20 actually delivered on a set of “coherent conclusions” on the management of speculative capital flows in emerging markets that should not be overlooked, especially by the International Monetary Fund (IMF).

Sarkozy assumed his role as head of the G20 during a period of excessive volatility in global capital markets that continues to this day. Because of loose monetary policy, low interest rates and a slow recovery in the North Atlantic, accompanied by high interest rates and rapid growth in emerging markets, the world’s investors flocked from north to south – to Brazil, Chile, South Korea, Taiwan and others. More recently, in response to eurozone jitters, capital has retreated from emerging markets to the “safety” of the United States – showing how dangerous speculative capital flows can be. New work released by the IMF this week suggests they are picking and choosing their direction from the G20.

In a significant reversal of past policy, in 2010 the IMF began recommending that nations deploy capital controls to mitigate the effects of speculative capital. Indeed, IMF work in 2010 showed that those countries that deployed capital account regulations were among the least hard-hit during the worst of the global financial crisis. As numerous countries across the globe began using controls in 2010-2011, further IMF work showed that those measures showed signs of working, too.

Sarkozy thus called for a code of conduct on capital controls and tasked the IMF to propose a set of guidelines for reform. The IMF delivered a set of guidelines in April of this year that met stiff resistance from the emerging market and developing countries that have been most successful in deploying capital controls. The IMF’s proposed guidelines recommend that countries deploy capital controls only as a last resort – that is, after such measures as building up reserves, letting currencies appreciate and cutting budget deficits.

Developing countries thought the guidelines missed the point. In the cases where the IMF found controls to be effective, such measures were part of a broader macroeconomic toolkit, and were deployed alongside other measures – not as a “last resort”. In October, these concerns were echoed by an independent task force of academics and former policy-makers that I co-chaired. We stressed that “consigning such measures to ‘last resort’ status would reduce the available options precisely when countries need as many tools as possible to prevent and mitigate crises.”

By the runup to the Cannes meeting, most of the G20′s apparatus was focused on the eurozone. However, a working group was formed to take the capital flows issue to the highest level. Headed by Germany and Brazil, the group forged the “G20 Coherent Conclusions for the Management of Capital Flows Drawing on Country Experiences”. The document was “endorsed by the G20 finance ministers and central bank governors in October, then endorsed by the G20 leaders themselves in Cannes.

In stark contrast to the IMF guidelines, the G20′s conclusions say that “there is no ‘one-size fits all’ approach or rigid definition of conditions for the use of capital flow management measures”, and that such measures should not be solely seen as a last resort. Instead, the G20 now calls on nations to develop their own country-specific approach to managing capital flows and, as Sarkozy said in his final Cannes speech, “the use of capital controls, and this is very important, is now accepted as a measure of stabilisation.”

Throughout the crisis, the IMF has usually been keen to accept new direction from the G20, but there are signs that it may be resisting the new G20 consensus on capital flows. The IMF’s latest report addresses the fact that industrialised country policies trigger unstable capital flows to developing countries and that the rich nations need to design policies that are mindful of such negative “spillovers”. Yet, the IMF merely adds that such principles will be added to their existing guidelines – seemingly ignoring the fact that those guidelines have now been superseded by the G20′s decisions.

The IMF should not ignore the G20′s direction on capital flows. Rather than pushing ahead on a globally enforceable code of conduct that could eventually lead to capital account liberalisation across the globe, the IMF should instead work to reduce the stigma attached to capital controls, protect countries’ ability to deploy them, and help nations police investors who evade regulation. G20 finance ministers, central bankers and heads of state have endorsed the use of capital controls by emerging markets, and on their own terms. The IMF should not pick and choose which directions by world leaders it will follow.

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Eurozone Economy Nearly Static in Third Quarter November 15, 2011

The eurozone economy barely advanced in the July-to-September period, weighted down by the financial woes in debt-ridden Greece and Italy.

The European Union said Tuesday that the economy in the 17-nation bloc that uses the euro currency expanded just two-tenths of one percent in the third quarter, largely supported by bigger growth in the continent’s two biggest economies in Germany and France. But the Greek economy retracted by 5.2 percent in the quarter, while economists think Italy also may have slipped into a recession.

Stocks fell on major exchanges in London, Paris and Frankfurt as investors continued to worry about the ability of fledgling coalition governments in Athens and Rome to adopt unpopular austerity measures to control deficits and pay back long-term debts.

Greek government workers staged a protest march through Athens on Tuesday against planned wage cuts on top of earlier salary cuts. More demonstrations are planned for later in the week.

The Greek Parliament is preparing for a confidence vote Wednesday on the caretaker government of its new prime minister, Lucas Papademos, and analysts say he is expected to prevail. Greek financial leaders are set to meet Friday with members of the International Monetary Fund, European Central bank and the EU in an effort to secure release of Greece’s next next $11-billion loan installment to keep it from defaulting next month on its international obligations.

In Rome, prime minister-designate Mario Monti won crucial support from Italy’s two main political groups as he moved to name his Cabinet. He said Monday he wants the government to stay on until 2013, the scheduled date for new elections, even as some Italian lawmakers are calling for earlier elections.

The government’s debt woes put new pressure on Monti to move quickly to name government leaders, with the country’s interest rate on its debt again topping 7 percent on Tuesday. That is the threshold that forced Greece, Ireland and Portugal to seek international bailouts.

The EU said Germany’s economy expanded by one-half of one percent in the third quarter, buttressed by increased household spending and by businesses investing in machinery and new equipment. The French economy advanced by four-tenths of a percent.

Some information for this report was provided by AP, AFP and Reuters.

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Berlusconi Resigns, Ending Scandal-Plagued Era November 13, 2011

Italian Prime Minister Silvio Berlusconi has resigned, ending a 17-year political era marked by allegations of corruption and sex scandals, and criticism over his failure to control the country’s massive debt.   

Mr. Berlusconi formally submitted his resignation to Italian President Giorgio Napolitano late Saturday after announcing that he was stepping down at a cabinet meeting earlier in the day.   Thousands of Italians gathered outside the Quirinale Palace, the official presidential residence in Rome cheering and shouting “buffoon!”

Italian President Giorgio Napolitano is widely expected to ask former European Union Commissioner Mario Monti to lead the new transitional government.

Italy’s parliament has adopted a package of European-backed economic reforms this week.  Mr. Berlusconi had announced last week that he would resign after the new budget law was approved.

The country’s leaders are now tasked with putting together a transitional government that will try to steer the country out of a potential economic crisis.

Analysts hope Monti, a well-respected economist, can bring a calming presence to the country as it struggles to thwart an economic crisis caused by a ballooning public debt. Italy’s borrowing costs have increased to its highest level since it joined the common euro currency zone and are now close to the same seven percent levels that pushed Ireland, Portugal and Greece to seek bailout loans.

International leaders including U.S. President Barack Obama, French President Nicholas Sarkozy and the head of the International Monetary Fund, Christine Lagarde, have expressed hopes that a new government can be formed quickly. Though Monti has backing from the main opposition Democratic party and several smaller opposition groups, Mr. Berlusconi’s allies remain split over who should replace the embattled leader.

Mr. Berlusconi came to power for the first time in 1994 and served three stints as prime minister during 10 of the past 17 years. Each of his terms were tainted by corruption scandals and allegations that he used his power to help his business interests. The 75-year-old billionaire media mogul also faced a high-profile scandal during his current term involving allegations of involvement with a 17-year-old prostitute, charges he denied.

Some information for this report was provided by AP, AFP and Reuters.

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Europe Lowers Growth Forecast for 2012 November 10, 2011

Europe got more bad news on Thursday, as the European Union’s executive arm sharply downgraded growth forecasts for the region. This has major implications for a continent buffeted by the financial and political crises in Italy and Greece.

The new figures predict economic growth across the European Union of only 0.6 percent next year – and just 0.5 percent in the 17-nation eurozone. That is substantially less than the 1.8 percent growth predictions earlier this year for the euro currency area.

European Economic and Monetary Affairs Commissioner Olli Rehn delivered a sober assessment of the region’s problems at a press conference in Brussels.

“GDP is now forecast to stagnate around the turn of this year, with some member states, in fact, experiencing a contraction,” said Rehn.

Rehn called on five EU members – Belgium, Cyprus, Hungary, Malta and Poland – to cut their budgets or risk facing sanctions. He also summed up international worries about the ailing region.

“Concern about the sovereign debt crisis in several euro-area member states, together with the weakening global economic conditions, have led to a sharp fall in confidence since April this year,” said Rehn.

Rehn is only the latest official sounding a warning. International Monetary Fund chief Christine Lagarde is urging “clarity” from Italy and Greece, which face political as well as economic turmoil. And noting the sluggish growth and high unemployment in the United States, she is warning of a “lost decade” ahead for the world economy.

“Our sense is that if we do not act boldly and if we do not act together, the economy around the world runs the risk of a downward spiral of uncertainty, financial instability and a potential collapse of global demand,” said Lagarde.

A Reuters report said officials from Germany and France have discussed a fundamental overhaul of the European Union, to create a smaller, more integrated eurozone group compared to the rest of the 27-member EU. Officially, however, both France and Germany say it is essential the eurozone remains intact.

Additionally, analyst Philippe Moreau Defarges, of the Paris-based French Institute of International Relations, said creating these two European systems would be problematic in practice.

“It’s very difficult because the juridical issue… in English you say ‘the devil is in the details’ – I would say what is important is in the details. It means that, of course, you can imagine a very ambitious scheme, very ambitious modification on the paper, but when you want to implement that… it’s much more difficult,” said Defarges.

What is certain is that the eurozone crisis is likely to dominate the news here for the months to come, with pressure growing for European leaders to come up with a comprehensive and sustainable solution.

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Obama Says Progress Made in Stabilizing World Economy November 5, 2011

U.S. President Barack Obama says the world’s leaders have “made important progress” in stablizing the global economy and that he is confident European leaders will be able to resolve the continent’s debt crisis.

Obama told reporters Friday at the end of the Group of 20 summit in Cannes, France, that “more hard work” remains to solve the European debt problems.  But he said European leaders had “laid a foundation” toward resolution of the crisis with last week’s debt-relief plan that cuts Greek debt, recapitalizes banks and increases the continent’s bailout firewall to deal with future emergencies.

Now, he said, the European plan “just has to be carried out.”

The U.S. leader acknowledged, however, that the U.S. economy is “underperforming.” He said that the U.S. recognizes that as the world’s largest economy, “the most important thing we can do is to get our own economy growing faster.”

He praised China for agreeing at the summit to take additional steps to boost its own domestic economy, in an effort to trim its large foreign trade surpluses, which has resulted in a huge trade deficit with the U.S.

Related report by Kent Klein:

Earlier, the G20 leaders said the resources of the International Monetary Fund need to be increased to help curb the European debt crisis, but failed to agree how to do that. The shape of any additional aid for the IMF remained uncertain at a time when some of the world’s largest economies, such as the U.S. and China, are facing their own economic difficulties.

Efforts to contain the European governmental debt crisis remained at the forefront on the second and final day of the G20 discussions, even after Greek Prime Minister George Papandreou on Thursday dropped his plan to hold a referendum on the week-old European debt-relief agreement. Under pressure from the U.S. and emerging economies, Italy agreed that the IMF would monitor implementation of its austerity measures aimed at keeping it from needing a bailout.

Thursday’s talks were largely overshadowed by Greece’s hesitancy to abide by the terms of the financial rescue package. European banks plan to forgive $140 billion in Greek debt in exchange for the Athens government’s agreement to adopt years of austerity measures that are hugely unpopular in Greece.

Late Thursday, French President Nicolas Sarkozy again urged Greece to accept the deal.

“I have admiration for Greece and its people. I have old family ties there, and in no way would I want to give the impression that we are interfering in their domestic affairs. But on the other hand, this is about the defense of the euro and the defense of Europe – and that’s our duty. For us, the red line is very simple. Europe and the euro are our homeland – and that has to be defended,” he said.

Earlier this week, Papandreou caused global financial panic by announcing a nation-wide vote on the bailout plan. He backed off his call for the vote after Greek opposition parties finally agreed to back the rescue package.

Sarkozy and German Chancellor Angela Merkel have warned that Greece will not receive “one more cent” of the next $11 billion disbursement of its rescue loan scheduled for December 4 unless it implements the austerity measures.

Without the funds, Greece risks a catastrophic debt default within weeks, putting at risk its membership in the 17-member bloc of nations that use the common European currency.

Some information for this report was provided by AP, AFP and Reuters.

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US to Play ‘Very Major Role’ In Helping Europe: Geithner October 15, 2011

October 14, 2011

by legitgov


Heads up! US to Play ‘Very Major Role’ In Helping Europe: Geithner 14 Oct 2011 The U.S. plans on being an active partner as efforts intensify to get Europe get back on its feet financially, Treasury Secretary Timothy Geithner told CNBC Friday. With global leaders preparing for next month’s Group of 20 nations (G20) summit in Cannes, France, the International Monetary Fund – of which the U.S. is the greatest contributor – is being relied on to help underwrite whatever efforts are needed to backstop toxic European sovereign debt. Geithner said the International Monetary Fund (IMF) has “very substantial” resources to fund a device that could look like the Troubled Asset Relief Program, which helped navigate bail out U.S. [and foreign] financial institutions through the crisis in 2008 and 2009.

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Australia: a friend to two giants | Malcolm Turnbull October 6, 2011

The rise of China is a massive realignment of economic and, in due course, political and strategic power at a speed and on a scale the world has not seen before. According to the International Monetary Fund’s forecasts it will overtake the United States as the world’s largest economy in 2016. Others argue it has already done so.

There are a few nations with a sense of cultural continuity and exceptionalism that rival China’s, but none rival its scale. China sees itself as a 3,000-year culture, for almost all modern history the world’s largest and strongest country.

Resource security (energy, minerals and food) is a growing preoccupation of Beijing. Its rush to acquire access to natural resources, including in Australia, is entirely understandable. And the financial crisis offers great opportunities for a cash-rich China to acquire as many premium resource assets as it can, so that it emerges with a global portfolio of sufficient scale and diversity to secure long-term, low-cost access to all the resources it needs.

So China represents a challenge to the US that is utterly unique. Americans, have assumed that they will always be the strongest, richest and cleverest nation on earth. Tom Friedman and Michael Mandelbaum’s book, That Used to Be Us, is eloquent testimony to a growing sense of inadequacy. This sense of being outclassed by China is not limited to Americans. Nobody who has visited Shanghai could be unimpressed.

To many in the west, as worrying as the shift of manufacturing and economic output to Asia are the transfers of political, institutional and military influence that will surely follow. And international institutions are changing to reflect that – the G20 is one example. Shifts in economic weight and military potential are a legitimate cause for anxiety, as the world’s grim 20th-century history reminds us.

Previous threats to more than a century of American economic primacy were not credible: the USSR of the late 50s and the Japan of the late 80s, the two alleged challengers, had economies only 40% as large. So the stakes are high, and this time the challenger is real.

And there is also strategic anxiety in the US over China, reflecting a concern that China has a very different understanding of the way in which world affairs should be ordered than the west.

While ever alert, we should not be alarmed, says Henry Kissinger, who argues that China’s well-developed and historic sense of its central place will make it a less outwardly assertive leading power than the US. China’s growth has indeed not been matched by any expansionist tendencies beyond reuniting Taiwan. The central role of trade in China’s prosperity also argues for its rise to remain peaceful. At 55% of its GDP in 2010, it has more to lose than most from any conflict that disrupts global economic flows.

The best and most realistic strategic outcome for east Asia must be one in which the powers are in balance, with each side effectively able to deny the domination of the other.

With its energy and resource security depending on long global sea lanes, it is hardly surprising that China would seek to enhance its naval capacity, so suggestions that China’s recent launch of one aircraft carrier and plans to build another are signs of a new belligerence are wide of the mark.

It makes no sense for the US or its allies to base long-term strategic policy on the proposition that they are on an inevitable collision course with a militarily aggressive China. I disagree with the underlying premise of a 2009 Australian white paper that we should base our defence planning on the contingency of a naval war with China in the South China Sea. Prejudice is not a substitute for coolly rational analysis. China needs to be more transparent about its goals in the region and build confidence with its neighbours so that misunderstandings can be avoided.

We in Australia have to adopt a clear-eyed appraisal of the strategic balance in east Asia. America is our closest ally. However, as China rises to become the world’s largest economy and in time a military rival to the US we are presented with a nation whose institutions and culture are very different to ours. Yet China is our largest trading partner and in large measure responsible for our current and prospective prosperity. We have every reason, and indeed every prospect, of remaining close and becoming closer friends of both these giants.

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The eurozone: a crisis of policy, not debt | Mark Weisbrot September 28, 2011

Three months ago, I wrote here about the risks that the European authorities were posing to the US economy and asked what the US government was going to do about it. It was clear at that time that “the Troika” – the European Commission, European Central Bank (ECB) and the International Monetary Fund (IMF) – was once again playing a dangerous game of brinksmanship at that time with the government of Greece. They were trying to force the Greek parliament to adopt measures that would further shrink the Greek economy and therefore make both their economic situation and their debt problem worse, while inflicting more pain on the Greek electorate. The threat from the Troika was putting the whole European financial system at risk, since it raised the prospect of a chaotic, unilateral Greek default.

My hope was that someone in the US Congress would step up to the plate and try to hold the US Treasury Department accountable. Treasury is still overwhelmingly the biggest power within the IMF – in fact, it has dominated the fund for the past six decades. Since the IMF is one of the three key decision-makers in Europe, the US government could at least use this avenue of influence to prevent them from making things worse there. And since that crisis in June, the Troika has also played a similar game of chicken with Italy – a country with more than five times the sovereign debt of Greece.

Last week, President Obama woke up to the fact that the Troika could pull the US economy down along with Europe and sent Tim Geithner to crash the eurozone ministers’ meeting. His job was to tell them to get their act together before their mess spreads across the Atlantic and costs Obama his re-election. On Monday, Obama took the even more unusual step of making his criticisms public, saying that the crisis in Europe was “scaring the world” and that the European authorities had not acted quickly enough.

Yet, there is no sign that the administration is even using its influence within the IMF to avoid disaster. One of the main triggers to the most recent financial turmoil was another fight between the IMF and Greece over a measly €8bn loan disbursement. The fund – presumably with US approval – has been threatening to hold up this money unless the Greek government implemented further budget tightening. In the face of massive protests and Greek public opposition to further punishment, this intransigence by the IMF once again threatened to push Greece to a chaotic default. That, in turn, could bring major European banks to insolvency and risk a full-blown financial crisis. And all because the Greek government couldn’t meet its budget targets for an €8bn loan disbursement.

If that sounds incredibly irresponsible or even stupid, it gets worse. The reason that Greece cannot meet its budget targets is that the policies imposed by the Troika have succeeded in shrinking the Greek economy and therefore its tax base. The IMF has repeatedly had to adjust downward its forecast for the Greek economy; it is now projecting a decline in GDP of 5% this year, as compared to one of 3% just six months ago. When the first “bailout” package for Greece was negotiated in May of 2010, the country’s debt was about 115% of GDP; it is now projected to hit 189% of GDP next year. Clearly, the Troika’s policies have had the opposite effect of their stated intention.

Now, the IMF has revised its projections for Italy downward as well, most likely because of the $65bn budget tightening that the Italian government has agreed to in the last month. This can set in motion a process similar to what has happened to Greece, where the economy slows and budget targets get more difficult to meet, and then interest rates on Italian bonds rise, increasing the government’s budget deficit. Bondholders and speculators then sell or short the country’s bonds, driving interest rates up further and reducing the value of the bonds held by European banks. A London bond trader described the process from his own point of view on 4 August:

“The SMP [the ECB's Securities Market Program] is back but it’s not in the right places – what’s going to stop us attacking Spain and Italy over the summer months, [be]cause I can’t think of anything. There is no buying of Italy and Spain going on and there won’t be, so why can’t we push these markets to 7% yields. I think we can quite easily.”

Of course, this kind of unrestricted speculation is also part of the problem. But in the first sentence, the trader was describing what had opened up his opportunity at that moment: the ECB was threatening not to buy Italian bonds, in order to pressure the Italian parliament into more budget tightening.

The European authorities have the ability and the potential firepower to do whatever is necessary to resolve the crisis: restructure the Greek debt; end speculation against Italian and Spanish bonds by buying enough of them to push interest rates down, and committing to keep these rates down; and guaranteeing liquidity for the banking system. The US government has repeatedly shown its willingness to provide dollars as necessary to prevent any foreign exchange crisis.

But most importantly, the European authorities have to reverse course and ditch the contractionary fiscal policies that are at the heart of the problem.

There are a number of technical fixes under discussion, including allowing the European Financial Stability Fund to leverage its resources by loaning to another entity that could issue bonds. But the main point is that the ability to provide the necessary resources is there. The Fed has created more than $2tn since our recession began, without any detectable impact on inflation here; the European central bank can do the same. There is no risk of inflation getting out of control: in fact, the IMF projects that inflation in the eurozone will fall from 2.5% this year to 1.5% next year. If Angela Merkel is listening to her FDP coalition partners’ bizarre rants about the threat of inflation, she needs to be thinking about another coalition.

The “European debt crisis” is misnamed; it is not so much a crisis of debt as a crisis of policy failure. There are always alternatives to a decade without growth, trillions of dollars of lost output and millions of unemployed that the European authorities are offering to the people of Spain, Portugal, Ireland, Greece and now Italy. All that is lacking is the political will and competence to change course.

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Strauss-Kahn Finds Luxury Digs Pending Court May 27, 2011

Disgraced former International Monetary Fund head Dominique Strauss-Kahn finally found a place to call home in New York City as he awaits a court hearing on sexual assault charges. He had met resistance from tenants at two other buildings.

Dominique Strauss-Kahn leaves a New York City jail pending court action. (Getty Images Photo)

Strauss-Kahn’s new 6,800-square-foot, three-story digs in Manhattan’s trendy TriBeCa cost $50,000 a month and include workout rooms and a home theater, according to the New York Post. It also has a room designed to house nannies, but his private guards will use it instead.

The neighbors here didn’t roll out the welcome mat, either.

“This is going to be awful. We don’t need this. They should send him back to jail,” the Post quotes one of Strauss-Kahn’s new neighbors as saying.

The French economic heavyweight is accused of assaulting a 32-year-old maid in a New York hotel suite.

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Ex-IMF Chief Strauss-Kahn to Serve House Arrest in Luxury, 6,800-Square-Foot Townhouse May 26, 2011

Dominique Strauss-Kahn, the disgraced ex-chief of the International Monetary Fund accused of sexually assaulting a New York City hotel maid, is out on bail and living in luxury in a 6,800-square-foot Manhattan townhouse with its own private spa and movie theater.

Strauss-Kahn, charged earlier this month in the alleged attack on the 32-year-old maid, posted a $1 million bail last week and agreed to remain under house arrest, but since then has had to live in temporary housing because his first choice for an apartment fell through when his prospective neighbors complained of a media circus.

He moved into a more permanent abode on Wednesday — a mock-Federalist townhouse for rent on a once-quiet cobblestone street in New York’s tony Tribeca neighborhood.

And his new neighbors sure aren’t happy about it either.

“This is terrible,” local resident Annette Goodman said. “I’m not commenting on whether he’s innocent or guilty, but assuming he is, the maid is living with the nightmare of the experience and he is living in luxury. Is that fair?”

As reporters and satellite trucks from around the globe descended on the block and policemen set up metal barricades to pen them in, inside the three-story townhouse, shades were drawn down and lights inside Strauss-Kahn’s new home turned off one by one, until the top two floors were pitch dark.

“I had no idea he was coming here. This is the height of bad decision-making. This is the height of hypocrisy,” Goodman said.

“He couldn’t stay with his daughter or on the Upper East Side because those were residential areas — this is a residential area! And he’s got a spa and theater in there. He’s really suffering, he’s really having it rough,” she said sarcastically.

“I’m concerned that all this (commotion) is going to attract other elements to the neighborhood,” said Goodman, a mother of two.

Linda Buongermino, who lives nearby, got off the subway yelling “please God, no, please,” hoping that the all the press meant anything but that the infamous Frenchman had moved in.

“It’s not a quiet neighborhood by any means, but this is crazy. I mean, I guess he has to go somewhere,” she said.

Ruben Sonz-Darnes was more laid back about “the Great Seducer” moving to his block.

“A lot of this kind of stuff happens here,” he said. “The neighborhood is used to this. Now we have a front-row seat.”

Multiple residents said the throngs of media and satellite trucks lining street brought back memories of when John F. Kennedy Jr., who lived nearby, died years ago.

But Sonz-Darnel seemed unimpressed with the scene.

“It could be a lot worse,” he said.

Then he screamed, as a few feet away a fight broke out. A resident began screaming and cursing at the crew occupying a local CBS news truck. He sprayed them and the truck with a powerful water hose, and a screaming match looked like it would turn into a fist fight when police standing in front of Strauss-Kahn’s new home rushed over to break up the fight, threatening to arrest the hose-armed man who continued to spew expletives.

Elton Wells, 39, a financial trader who lives nearby, said the water-hose fight was more interesting than anything going on across the street at the Strauss-Kahn townhouse.

“I think it’s going to be painful for a few months. It’s entertaining for me, but for most people it’s going to be very stressful,” Wells said.

People like the man with the hose are very angry about Strauss-Kahn’s arrival, Wells said, “but he did pick a nice place to move to. There’s great takeout around here.”

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Blood at Scene Becomes Pivotal for Strauss-Kahn Defense

Evidence that Dominique Strauss- Kahn’s encounter with a hotel maid may have involved force, including reports of blood at the scene, might damage any defense contention that she consented, former prosecutors said.

Strauss-Kahn is accused in a seven-count indictment of forcibly trying to have intercourse with the woman at the Sofitel hotel in midtown Manhattan, and of making her have oral sex with him. Strauss-Kahn, who resigned as head of the International Monetary Fund after being charged with sexual assault and attempted rape, plans to plead not guilty, his lawyers have said.

Since Strauss-Kahn’s May 14 arrest, news organizations, such as the Associated Press and Fox News, have reported the discovery of physical evidence, including semen and a cut on the defendant’s back, that suggest contact between the accuser, a 32-year-old West African immigrant, and Strauss-Kahn, 62. Strauss-Kahn hasn’t confirmed or denied there was an encounter. His attorneys stopped just short of saying that, if there was one, it was consensual.

“If the DNA evidence is straightforward and there are no big surprises along the way here, plea negotiations would seem inevitable,” Samuel Buell, a former federal prosecutor, said in a phone interview. “It may be a matter of some time before the defendant can be brought to understand the necessity of those discussions.”

Crime Scene Unit

A New York Police Department crime scene unit gathered evidence from Strauss-Kahn’s hotel suite, Assistant District Attorney John “Artie” McConnell told a judge last week. While the results of tests performed on material taken in the searches weren’t available as of the May 19 hearing, preliminary indications “support the victim’s version of events,” the prosecutor said.

Strauss-Kahn’s body was examined and photographed after his May 14 arrest. Defense lawyers Benjamin Brafman and William Taylor said their client agreed to a government request for a physical examination.

News organizations including the Wall Street Journal have reported that a DNA sample from Strauss-Kahn matched semen found on the maid’s shirt. The Associated Press reported carpet samples taken from the room may contain semen traces and blood was found on the sheets. Fox News said Strauss-Kahn cut his back on a piece of furniture in the room during a struggle with the victim, who told him that she didn’t want to have sex with him. All the reports cited unidentified sources.

Reports of Evidence

Erin Duggan, a spokeswoman for the New York District Attorney’s office, declined to comment on the reports. Paul Browne, a spokesman for the police department, didn’t return calls seeking comment. Brafman, who declined to comment on the reports, told a judge last week that the evidence was in his client’s favor.

“The forensic evidence, we believe, are not consistent with forcible encounter,” he said at Strauss-Kahn’s first appearance in Manhattan criminal court, stopping short of directly saying it was consensual. “This is a very, very defensible case.”

If convicted, Strauss-Kahn faces as long as 25 years in prison. He has been free on $1 million cash bail and under home detention and armed guard since May 20. His arraignment is scheduled for June 6. In arguing against bail, McConnell said the accuser’s actions and the results of a physical examination supported her account.

‘Multiple Witnesses’

“She made outcries to multiple witnesses immediately after the incident, both to hotel staff and law enforcement,” McConnell said at the May 16 hearing. “She was then taken to the hospital and was given a full sexual assault forensic examination. The observations and findings during that exam corroborate her accounts,”

Any blood from a cut on Strauss-Kahn or the woman that was consistent with her resisting would subvert a defense that the sex had been consensual, said Paul Callan, a former New York prosecutor.

“Blood would be critical to prove physical force. If indeed there is an injury to his back, it corroborates a specific detail in her story,” Callan said in a phone interview. “Corroboration is very important. In a case where it’s he-said, she-said, it gives the jury something to rely on.”

Plea Not Likely

Still, a plea is unlikely, said Callan, who represented the estate of Nicole Brown Simpson in a civil lawsuit against O.J. Simpson. The former football player was found liable for his ex- wife’s wrongful death after being acquitted on charges of murdering her and Ron Goldman.

With a plea, Strauss-Kahn “would become a registered sex offender and it would stain him for the rest of his life,” Callan said. “It’s going to be won or lost at trial.”

Defense lawyers may try to claim the maid exchanged sex for money, Callan said.

“I don’t see the defense being able to make a compelling case” that the woman was “overcome by lust,” Callan said. “The details of the defense are going to be supplied as the case goes along, and it’s not going to be pretty for the victim.”

Callan said he was in the Manhattan District Attorney’s office the day the maid was reported to have testified before the grand jury.

“She had a hat on, large sunglasses and a silk scarf pulled across her face, which she put down as she walked past me,” Callan said. “She was surrounded by police detectives.”

Gained Credibility

Prosecutors said that the woman’s story gained credibility because she immediately reported the alleged incident to fellow workers. She also picked Strauss-Kahn out of a police lineup within 24 hours of the alleged attack. McConnell said Strauss- Kahn could be seen on a hotel video making an “unusually hasty” exit after the attack allegedly occurred.

Defense lawyers said their client was in a hurry to have lunch with his daughter before heading to a scheduled Air France flight. Also, they said, he later called the hotel looking for a mobile phone he thought he had left in his room and told the security staff where to find him. Police used that information to arrest him minutes before his plane was due to take off.

“If you just committed crime at a hotel in New York, the last thing I would want to do is report to hotel security where I am,” Brafman said at a bail hearing.

Brafman told French television’s TF1 on May 22 that, based on the evidence he had seen, his client would be acquitted at a fair trial.

Hard to Convict

Linda Fairstein, a former Manhattan prosecutor who specialized in cases involving sexual attacks, said that while the evidence reported so far seems to favor the prosecution, a conviction will be difficult to obtain.

Strauss-Kahn, a former French finance minister and member of France’s opposition Socialist Party, had been among the most popular possible candidates to contest France’s 2012 presidential election, according to opinion polls.

“I think it’s a tough case — because of the facts and circumstances and the power dynamic between the witness, who is probably an uneducated or less educated employee doing a menial job, and a powerful, well-respected brilliant politician,” Fairstein said.

The New York Post, citing an unnamed French businesswoman, reported that friends of Strauss-Kahn offered money to the maid’s family in Guinea to make the case go away.

‘Fully Exonerated’

“Reports that Mr. Strauss-Kahn’s attorneys or representatives are in contact with the complaining witness or her family are false,” Taylor and Brafman said today in a statement distributed by PR Newswire. “We continue to believe that Mr. Strauss-Kahn will be fully exonerated.”

“There will be enormous pressure on her family in Africa, and undoubtedly her reputation will be vigorously attacked by supporters of Strauss-Kahn,” Callan said. “The biggest thing the prosecutor has to do is keep her available for trial.”

Without the victim, Fairstein said, “there is no case.”


© Copyright 2011 Bloomberg News. All rights reserved.

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IMF chief may use tried-but-tricky consent defense May 25, 2011

Former International Monetary Fund chief Dominique Strauss-Kahn has shed little public light on his account of what happened between him and a hotel housekeeper who accused him of sexually attacking her. But in a potentially revealing hint, one of his lawyers has said he doesn’t expect the evidence will show a forcible encounter.

If Strauss-Kahn’s lawyers are planning to argue there was a consensual liaison, they would be using a common sex-crime defense argument — but one that has both succeeded and failed in other high-profile cases. It sets up a “he-said, she-said” confrontation that can pose challenges for defense lawyers and prosecutors alike, legal experts say.

“They’re really difficult cases because, by their very nature, nobody else is there,” said Brenda Smith, an American University Washington College of Law professor who has studied sexual violence. Even DNA or other forensic evidence might establish sexual contact but still not prove an attack, “so it really is the credibility of the complainant and the defendant, and also the facts and information that each side can marshal to support their version of what occurred.”

For now, Strauss-Kahn is under house arrest in a Manhattan apartment on a total of $6 million in bond and cash bail, facing attempted rape and other charges. At the time of his May 14 arrest, the 62-year-old economist and diplomat led the powerful, loan-making IMF and was considered a leading contender to challenge French President Nicolas Sarkozy.

Prosecutors say he chased down the cleaner in a penthouse suite, groped her, tried to pull down her pantyhose and forced her to perform oral sex.

The 32-year-old woman immediately told hotel staffers and then police, providing “a compelling and unwavering story” supported by findings from a physical exam, Manhattan assistant district attorney John “Artie” McConnell told a judge last week. Strauss-Kahn’s DNA was matched Monday with material on the maid’s uniform shirt, two people familiar with the investigation told The Associated Press.

The woman’s attorney, Jeffrey Shapiro, has said “there is no way in which there is any aspect of this event which could be construed consensual in any manner.”

But Strauss-Kahn lawyer Benjamin Brafman has suggested that might be exactly how his camp construes it.

“The forensic evidence, we believe, will not be consistent with a forcible encounter,” he said in court last week. He and Strauss-Kahn’s other attorneys have declined to elaborate and wouldn’t comment on the case Tuesday.

Strauss-Kahn insists he is innocent, telling colleagues in his IMF resignation letter last week he would “devote all my strength, all my time, and all my energy” to proving it.

In general, consent is legally defined as positively cooperating in and understanding the act in question, said Robin Sax, a former Los Angeles sex-crimes prosecutor now in private practice.

There have been some famous defense successes. Accused of raping a woman in 1991 at his family’s estate in Palm Beach, Fla., William Kennedy Smith was acquitted of sexual battery. He’d met his accuser at a nightclub during a night out on the town with an uncle, the late U.S. Sen. Ted Kennedy.

Smith testified that the sex was consensual. He said he “felt sorry” for his accuser and acknowledged it was “foolish and irresponsible” for him to have unprotected sex with a woman he barely knew, but said she was equally foolish. Jurors took about an hour to acquit him.

To some, such arguments can look like trying to sully the accuser, a potential pitfall for a defense if jurors find it objectionable.

“That’s always the classic claim, that you’re blaming the victim, but that’s said by people who don’t understand,” Smith’s lawyer, Roy Black, said in an interview Tuesday. “The victim may not be on trial, but her testimony, her accusation, is on trial.”

A claim of consensual sex failed for boxer Mike Tyson, convicted in 1992 of raping an 18-year-old beauty pageant contestant. Tyson acknowledged having sex with the woman in an Indianapolis hotel room but said he didn’t force her. His lawyer argued that the woman filed charges out of anger at how Tyson had treated her after the encounter.

“It was a tough case,” the lead prosecutor, J. Gregory Garrison, recalled Tuesday. Especially in acquaintance-rape cases, with no third parties who can describe what happened, “it’s a question of persuasion.”

The woman’s torn clothes were shown during the trial, and a medical expert testified that the woman had sustained internal injuries that were inconsistent with consensual sex. But some of the key moments Garrison remembers were less about what was said than what was seen, as when audible gasps arose in the courtroom as the petite woman entered the courtroom to face the chiseled heavyweight champ. Tyson ultimately served about three years in prison.

It is usually difficult, if not impossible, to make a case without the accuser’s testimony, and “victims often don’t want to go through the nightmare that may result,” said Corey Rayburn Yung, a professor at the John Marshall Law School in Chicago who studies sex crimes.

The sexual assault case against NBA star Kobe Bryant was dropped after the woman told prosecutors she couldn’t take part in a trial. She had accused Bryant of raping her in a hotel room in Vail, Colo. Bryant apologized for his “behavior that night and for the consequences she has suffered,” while insisting the sex was consensual.

Prosecutors there said they were confident they could convict Bryant, but only with her cooperation.

“There are a lot of misconceptions by people. They think women make up sex assaults,” Mark Hurlbert, the prosecutor in Bryant’s case, said Tuesday. “I don’t know why … because it’s such a traumatic process, not only the attack but what the system does to these victims. The person who comes forward to testify is pretty sure of herself.”

Prosecutors and defense lawyers will scour for other evidence and indicators to back their side’s version of events. They might look at forensic evidence and injuries, if any; whether the accuser reported the alleged incident immediately, and how consistently he or she related it; how the defendant behaved in the immediate aftermath; whether the accuser is seeking money in a lawsuit.

“He says he didn’t do it, she says he did, so now whom do you believe?” said Black, Smith’s lawyer. “The only thing you can do is look at all of the little pieces of information, all the disparate things that at first don’t look important.”


Associated Press writer Colleen Long and researcher Julie Reed contributed to this report from New York.

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NY case shows daily dangers faced by hotel maids May 23, 2011

Hotel housekeepers say they often feel a twinge of fear when they slide the key card, turn the door handle and step into a room to clean it. What will they find?

For Argelia Rico, it was a naked man who touched himself as he ogled her. For Kimberly Phillips, it was a pair of dogs that tore into her leg.

This week the former head of the powerful International Monetary Fund, Dominique Strauss-Kahn, was charged with chasing a housekeeper around his $3,000 a night penthouse suite and forcing her to perform oral sex on him at the Sofitel New York Hotel.

But labor groups and hotel housekeepers have reported at least 10 other attacks in the U.S. in recent years, from the Washington, D.C. suburb of Gaithersburg, Md., to remote Grand Island, Neb.

Labor groups say many more are hushed up because the victims are illegal immigrants or because hotels are wary of scaring off guests. Many hotels laid off security staff during the recession, leaving workers even more vulnerable, they said.

“It’s dangerous work,” said Yazmin Vazquez, who works at a hotel in downtown Chicago. “These customers think they can use us for anything they want because we don’t have the power that they have or the money that they have.”

Anthony Roman, a consultant based on New York’s Long Island who spent 30 years working security for hotels, said he saw dozens of incidents involving female room attendants, from drunken propositions to rape.

“They’re not an infrequent occurrence,” he said.

Roman said that while hotels try to make sure that housekeepers aren’t alone for their whole shift, “if you have a sexual predator by nature, all bets are off.”

At the luxury hotel in Toronto where Andria Babbington worked for 17 years, housekeepers especially hated doing “turn-down” service, which involves preparing beds for the night.

Some men would put money on the pillow, ask for sexual favors and tell the women they could take the money when they left, Babbington said.

Others took a more circuitous route to the same end: they would inquire about a housekeeper’s home country and how many family members they were supporting. Then came some sympathetic-sounding questions about much the hotel paid them — followed by an offer of money for sex.

One guest bugged Babbington for days about having a threesome with his wife. She hid her name tag whenever she cleaned his room. If a housekeeper reacted angrily, the guest would find some reason to raise a stink, she said.

“When they complained the management would send a fruit basket up to their room and offer them a discount on their next stay,” Babbington said. “It became the norm, and we couldn’t do anything about it.”

Now a union organizer, the 45-year-old Babbington said she now hears similar stories from workers at other hotels.

Rico, a 38-year-old housekeeper at a hotel in Irvine, Calif., said she was cleaning a bathroom in 2009 when a guest entered and asked her to change his sheets. She did, then went to get her cleaning supplies out of the bathroom.

When she came out he was lying naked on the bed, watching her and touching himself, she said.

“When I told my supervisors, they didn’t do anything,” Rico said. “From then on I had to ask a co-worker from the floor upstairs to accompany me so I could clean his room, because that really scared me.”

Phillips was cleaning rooms at a Hampton Inn in Lebanon, Ky., last year when she opened the door of Room 118 to find two dogs. The animals attacked her left leg, biting through to the bone, until a hotel guest fought them off with Phillips’ broom.

The dogs belonged to a contractor who was staying at the hotel while doing work there.

The 40-year-old Phillips now uses a cane and walks with a limp. She has nerve damage in her leg and suffers from panic attacks.

“It’s completely changed my whole life,” she said. “Even to sit outside, I can’t do that: I’m afraid a dog is going to approach me.”

The Hampton Inn’s manager, Becky Edlin, said the hotel had tightened its security measures after the attack but declined to elaborate.

Many hotels have adopted policies aimed at protecting housekeepers, such as barring them from cleaning rooms while they are occupied. One standard practice is to prop the open door with a supply cart.

Vazquez, 40, says she started wearing extra clothes under her uniform as an added layer of protection after a VIP guest barged into a bathroom she was cleaning and pulled out his privates in August. She also wears a jacket that comes down to her thighs.

“Anything to hide your figure,” she said.

Some hotels will send only male employees to a room late at night if their computers show a guest is watching porn, said Carl Boger, dean of academics at the University of Houston’s college of hotel management.

They can also monitor who opens a door and when by looking at the electronic lock system, he said.

In the New York case, those records should help investigators determine the timeline of the alleged attack and if the housekeeper had propped the door open, he said.

The open-door policy is a security procedure that’s been in place at the Sofitel before Strauss-Kahn was charged in the alleged May 14 attack. Sofitel officials say they’re not aware of any other incident of a sexual attack on a maid at any of their worldwide hotels.

The 32-year-old maid, an immigrant from the West African nation of Guinea who worked for the Sofitel for three years, told police that a naked Strauss-Kahn accosted her after she came into the room, attacking her in the bedroom and bathroom before she got away.

Strauss-Kahn was indicted on multiple charges including attempted rape and sexual abuse; he posted $1 million cash bail and a $5 million insurance bond and is under house arrest in Manhattan.

Labor groups worry that the recession has created more danger by forcing hotels to cut back on both security guards and housekeepers.

“You’re on a floor by yourself, with those long hallways and nobody around, cleaning 30 rooms a day alone,” said Tho Do, a vice president of UNITE HERE, a union representing hotel workers. “You don’t have a lot of protection.”


Associated Press writers Leanne Italie and Verena Dobnik contributed to this report.

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IMF Chief Resigns Amid Sexual Assault Allegations May 19, 2011

NEW YORK — Dominique Strauss-Kahn will try to get out of one of America’s most notorious jails Thursday, hours after he resigned as chief of the International Monetary Fund to focus his energy on fighting sexual assault charges.

Behind bars on New York’s Rikers Island since Monday, the beleaguered former IMF chief is returning to a Manhattan court Thursday afternoon to again ask for bail on charges he sexually assaulted a hotel maid — a move seemed certain to face vigorous opposition by prosecutors.

Late Wednesday, Strauss-Kahn resigned as managing director of the International Monetary Fund, according to a letter released by its executive board.

In the letter, Strauss-Kahn denied the allegations but said he felt compelled to resign with “great sadness” because he was thinking of his family and also wanted to protect the IMF.

Click here to read the full text of Strauss-Kahn’s resignation letter.

In court papers filed by his defense team Wednesday, Strauss-Kahn said he had surrendered his passport and wouldn’t flee the country. His attorneys proposed posting $1 million cash bail and confining him to the home of his daughter, Camille, a Columbia University graduate student in New York, 24 hours a day with electronic monitoring.

Strauss-Kahn, 62, “is a loving husband and father, and a highly regarded diplomat, politician, lawyer, politician, economist and professor, with no criminal record,” his attorneys wrote.

They had proposed similar conditions at an earlier bail hearing but added house arrest on Wednesday. A judge denied him bail Monday.

Investigators have revisited to the penthouse hotel room to cut out a piece of carpet in a painstaking search for DNA evidence, law enforcement officials said Wednesday. New York detectives and prosecutors believe the carpet in the hotel room may contain Strauss-Kahn’s semen, spat out after an episode of forced oral sex, the officials told The Associated Press.

One of the officials said that the DNA testing was being “fast-tracked” but that the results could still be a few days away.

The two officials spoke to the AP on condition of anonymity because neither was authorized to speak about the case publicly and because it has gone to a grand jury.

The maid, a 32-year-old immigrant from the West African nation of Guinea, told police that Strauss-Kahn came out of the bathroom naked, chased her down, forced her to perform oral sex on him and tried to remove her underwear before she broke free and fled the room.

The AP does not identify alleged victims of sex crimes unless they agree to it.

Strauss-Kahn went from his luxurious hotel suite to an isolated cell block at Rikers normally reserved for patients with contagious diseases. Kept in protective custody and on a suicide watch, authorities said he ate his meals alone in a single cell and was escorted everywhere by prison guards.

Defense lawyers can raise the issue of bail as many times as they like, and it’s common to make new proposals and try again after a client gets high or no bail, said Stuart P. Slotnick, a New York defense lawyer not involved in the case.

Living elsewhere is often seen as as a risk, but it’s not insurmountable, Slotnick said.

In a case like Strauss-Kahn’s, bail “is not going to be a slam dunk, but if they can convince the judge that he’s not a risk of flight, that he’s going to come back, then he’ll get bail,” Slotnick said.

Another hearing had been scheduled for Friday, the deadline for prosecutors to bring an indictment, agree to a preliminary hearing or release him.

In addition to examining the Sofitel Hotel suite for further potential DNA evidence, investigators were looking at the maid’s keycard to determine whether she used it to enter the room, and how long she was there, officials said.

Police Commissioner Raymond Kelly declined to comment Wednesday on the details of the evidence-gathering but said results of any DNA and other testing have not yet come back. He said the detectives investigating the case found the maid’s story believable.

“Obviously, the credibility of the complainant is a factor in cases of this nature,” Kelly said. “One of the things they’re trained to look for, and what was reported to me early on, was that the complainant was credible.”

One of Strauss-Kahn’s attorneys, Benjamin Brafman, said at his client’s arraignment this week that the forensic evidence “will not be consistent with a forcible encounter.” That led to speculation the defense would argue it was consensual sex.

The woman’s lawyer, Jeffrey Shapiro, has dismissed suggestions from some of Strauss-Kahn’s defenders that she made up the charges or tried to cover up a consensual encounter.

Strauss-Kahn is one of France’s highest-profile politicians and was seen as a potential candidate for president in next year’s elections. His arrest shocked France.

The scandal comes at a critical moment for the International Monetary Fund, which is trying to shore up teetering economies in Europe. The IMF is an immensely powerful agency that loans money to countries to stabilize the world economy. In exchange it often imposes strict austerity measures.

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American politicians are calling for China to revalue its currency… October 18, 2010

In this political cartoon, the United Kingdom,...

American politicians are calling for China to revalue its currency to help out troubled US exporters. But in an interview with SPIEGEL, a leading German economist has warned that America first needs to make products that people want to buy.

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Kinda sad to think that once the worlds greatest ever industrial power, has been allowed to become the worlds greatest debtor…

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US-Europe scandal may paralyze IMF August 27, 2010

Tags: Commentary, World, IMF, Business
Garibov Konstantin
27.08.2010, 16:18

The International Monetary Fund (IMF) may lose its board of directors amid the escalating scandal between the United States and Europe over the ways to reform this financial institution. The scandal came as a bombshell, while IMF’s spokesman Gerry Rice said there was nothing to worry about.

It all started with Europe’s refusal to give some of its 9 seats in the 24-member board of the International Monetary Fund to emerging markets. It should be noted that the fund’s lending capacity is distributed in compliance with the members’ voting power. Naturally, the European board, which has been dominating since the IMF was founded, will not yield power and thus sabotage the decision made by the leaders of last year’s G20 summit in Pittsburg.

At the summit, the sides reached a historical compromise, assuming obligations to redistribute IMF quota shares in favor of developing economies, expert with the Finance Academy of the Russian Government Boris Rubtsov said.

Obviously, while China, India, Brazil, and Russia are gaining strength, their role in decisions by the International Monetary Fund should also increase. I think it would be logical if both the US and Europe yield some of their seats, said Rubtsov.

IMF’s new executive board is expected to assume office on November 1st this year. According to the organization’s official spokesman Gerry Rice, there is no cause for concern, even though the US and Europe failed to reach a compromise within a year. If the latter eventually refuses to lose some seats, Washington will not give ground too. The US may once again use the blocking stake and frustrate the decision on re-electing the current board of directors, as it happened last week. The International Monetary Fund will prove incapable of making any further decisions unless a compromise is reached between the two sides.

Of course, it is possible to form a restricted board, but in this case African countries will be out of the running. And this may result in a more prominent political scandal.

Remaking the board members’ areas of responsibility will also prove painful, since many of them represent the interests of not only their countries.

Another obstacle for seeking a possible way out is Europe’s inability to promptly make permanent decisions, especially if it needs to yield some of the privileges to developing countries.

Coffee Talk!

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America Is Flat Busted Broke… August 13, 2010

That’s according to a prominent U.S. economist, Laurence Kotlikoff, who has come up with some startling figures claiming America‘s national debt is $200 trillion, far greater than the official figure of $13 trillion.

But even with the declared amount оf public debt (over $8.7 trillion), it means that an average share for every US citizen amounts to over $28000.

And according to observers, the national debt has been increasing at an average of $4 billion per day since September 2007.

“The debt numbers that our government is putting out portray a small part of the total problem that we face. We have huge implicit, unofficial debts to pay, like Medicare benefits,” noted the economist. “When you look at all the debts, all the obligations that we call the fiscal gap… the gap is enormous, it’s about $200 trillion.”

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“Paying off that fiscal gap requires coming up with about 14% of the GDP every year, year after year, through time. And that is really a prescription to bankruptcy because we cannot really afford that. Bankruptcy means that you cannot pay your future bills. It does not mean that you cannot pay your current bills, because if you cannot pay them you are already bankrupt,” Kotlikoff pointed out.

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