It has foiled his chances of moving into the Élysée Palace, forced his resignation from one of the stellar jobs in global finance, and sparked debate about the predatory sexual behaviour of the French male elite.
But the alleged attempted rape of a chambermaid by Dominique Strauss-Kahn in a plush Manhattan hotel suite last month may also have compounded Europe's year-long currency crisis, with the fate of the euro and the continent's big banks hinging on how – and if – Greece can be saved from sovereign default for the second time in a year.
As intense bargaining continued behind the scenes over Europe's response to the escalating Greek turmoil, the Guardian has learned that the change in leadership at the top of the International Monetary Fund last month also brought an abrupt shift in IMF style and policy on Europe's bailout of Greece.
Just as it was becoming clear that last year's ¤110bn (£97bn) rescue had failed and that a similar sum would be needed to forestall a Greek sovereign default and a calamitous impact on exposed European banks, the IMF presented the German government with an ultimatum: deliver iron-clad guarantees on a new Greek bailout and put a figure on the sums needed, or there will be no release of IMF funds for Greece next month, risking a default by Athens.
Senior officials involved in the high-stakes negotiations say that the turning point came in the elegant resort of Deauville on the Normandy coast late last month, where Nicolas Sarkozy hosted Barack Obama and other world leaders at a G8 summit.
Strauss-Kahn had stood down the previous week following his New York arrest. His temporary replacement as head of the IMF, John Lipsky, went to France to force the hand of the Germans, the key players in the bailout drama.
Strauss-Kahn had been a central figure in the euro crisis and had won plaudits for his role as a political fixer, and as a skilled French politician. Lipsky, an American, was less silky, much blunter. On the margins of the Deauville summit, he negotiated with the government of Angela Merkel, and with Herman Van Rompuy of Belgium – who will chair yet another crisis EU summit next week as president of the European Council.
Greece is set to run out of money by 15 July unless the fifth tranche of the joint eurozone-IMF bailout, amounting to ¤12bn, is disbursed. The Guardian understands that Lipsky told the Germans that the IMF would withhold the funds unless Berlin guaranteed a new bailout and named the figure by then.
Merkel has consistently played for time throughout the crisis and always refused to act until the last minute, in the process exasperating the Americans, who take the view that "in a crisis like this, a massive government response is necessary – act quickly, dramatically, and comprehensively," in the words of a senior diplomat in Brussels.
This is the opposite of how Merkel has handled the crisis from the very start. In the current bind, the Germans again hoped to play for time, and delay a new rescue until September, according to people involved in the Deauville negotiations. Too late. Lipsky called their bluff and the Germans yielded through gritted teeth.
"It was agreed that the IMF will participate in the next tranche," said an EU ambassador. "It is no longer problematic. There will be a second rescue. That's the agreement – in principle."
But in a replay of the tactics that have characterised every episode in the bailout drama of the past year, the Germans, having reluctantly conceded on the big issue, then sought to dictate the terms of the new bailout, picking fights with the French, the European Central Bank, the European commission and Van Rompuy.
Ten days after the Deauville deal, Wolfgang Schäuble, the German finance minister, leaked a letter to his eurozone peers conceding that Greece would go bust by July without a rescue, but insisting that the price for German participation in the new bailout was that Greece's private creditors had to accept losses on their loans to Athens – the moral hazard argument.
Powerful opponents, led by the ECB, Olli Rehn, the commissioner for monetary affairs, and Van Rompuy, say that seizing the moral high ground might be all well and good, but will actually make a bad situation a lot worse. It could bring down the Greek banks, have a disastrous knock-on effect on French and German banks, and leave the eurozone contemplating the euro's demise in its own "Lehman's moment".
The veteran president of the euro group of countries, Jean-Claude Juncker of Luxembourg, warned that if Greece's creditors were forced to shoulder losses of ¤35bn – the kind of figures talked of in Germany – the Europeans would need to stump up ¤24bn more to save the Greek banks – robbing Peter to pay Paul.
The result for the past fortnight has been an arcane argument across Europe about restructuring, rescheduling, rolling over or reprofiling Greek debt. In the more brutal world of the financial markets, this is called a default, whatever the euphemism manufactured by an EU summit.
Diplomats, officials, and central bankers are also desperately devising formulas that might deem the "haircuts" for private holders of Greek debt a "voluntary" act by the creditors, although senior Brussels officials admit they are not sure how to persuade the banks to volunteer for losses.
Although everyone knows the clock is ticking on the urgent need for a new bailout, the vicious dispute over the detail is unresolved, will probably not be fixed at a flurry of meetings and summits over the next week, and may have to wait until 11 July, when it is crunch time for Greece.
Germany is increasingly isolated and the fallout from a year of culture clashes over Greece and the euro has done immense, probably lasting damage to the EU.
"It's been a real political stress test for Europe," said a senior EU official. "There is support fatigue in the north and reform fatigue in the south. If it lasts a lot longer, it will really erode the European project."
John Lipsky profile
John Lipsky smiles and jokes easily in private meetings and in front of the cameras, but as an economist he raises few laughs, especially in Greece.
The 64-year-old interim boss of the International Monetary Fund is closely aligned with the Chicago school of economists whose adherence to free and unregulated markets in the 90s is largely blamed for the financial crisis. In the 1990s, as chief economist at first Salomon Brothers and then JP Morgan, he rode the stock market boom and lectured countries on fiscal rectitude.
He has made clear he is very different from his predecessor, Dominique Strauss-Kahn, who voiced concerns about the lack of jobs created by western governments and the potential for social unrest. In all his public pronouncements, Lipksy has read the IMF rulebook about cutting public spending to meet debt obligations.
Descended from Russian immigrants, Lipsky was born in Cedar Rapids, Iowa.He spent 10 years at the IMF before joining Wall Street, then returned to the IMF in 2006. His mother saidtold her local newspaper that he took a large pay cut to go back to the Washington based IMF in 2006.
He has a career chock full of international experience including two years of service as the IMF's representative in Chile and three years as Salomon's director of European economic and market analysis group. He announced his intention to retire a day before Strauss-Kahn was accused of attempted rape. A week later, he reluctantly agreed to run the organisation as interim boss.
Phillip Inman