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A Houston company is in the early stages of planning one of the largest energy infrastructure projects the Midwest has seen in years - a $1.7 billion high-voltage transmission line connecting Kansas wind farms with consumers in St. Louis and throughout the Ohio River Valley.

The so-called Grain Belt Express transmission line, named to evoke images of train hopper cars rolling across the Plains, would stretch 550 miles from southwestern Kansas to southeastern Missouri. It would be capable of moving 3,500 megawatts of electricity - roughly enough to power 3.5 million homes - to eastern Missouri, Southern Illinois and beyond.

The project is being driven by renewable energy demand, more specifically state mandates that have been approved by voters and legislatures including Missouri and Illinois. The goal in each case is to replace coal-fired power with cleaner energy supplies.

While there is solar energy potential anywhere the sun shines, and renewable fuels such as biomass are getting more traction, wind power is eyed as the renewables workhorse.

“The trick is you’ve got to move it from windy parts of the country to where the population centers are,” said Mark Lawlor, director of development for Clean Line Energy Partners LLC, the company planning the project.

That describes the logic behind the Grain Belt Express line. Western Kansas is among the areas with the nation’s best wind energy potential, but development of new projects has stalled somewhat because that area is already awash in wind power.

Developers there are lining up to build new wind farms, representing thousands of megawatts. Projects have been permitted and land has been leased, but work won’t go forward without additional transmission infrastructure, he said.

Lawlor said the existing transmission grid lacked capacity to move Kansas wind power to eastern Missouri. A similar challenge faces wind farm developers in Iowa, northern Illinois and elsewhere. Even if capacity was available on existing lines, it would be difficult logistically - the equivalent of driving 500 miles on winding, two-lane country roads.

ENERGY SUPERHIGHWAY

The answer, according to Clean Line Energy, is a large-scale transmission project, an electron superhighway spanning the better part of two states with no off-ramps between the start and end points.

“We want to do it on a large scale to keep the overall cost of the power at a minimum,” Lawlor said.

Besides scale, the key to making the project viable is direct current technology.

The Grain Belt Express line will look much like existing alternating current transmission lines crisscrossing the country, but the planned high-voltage DC line is preferable for moving large amounts of power long distances. Such lines are more efficient, reliable and economical, Lawlor said. They also require narrower rights of way and smaller towers.

Such DC transmission lines are rare, but not new. Twenty already operate in the United States, the company said.

The Grain Belt Express line will originate near Spearville, Kan., and stretch across southern Missouri to a St. Francois County substation, where it will connect with Ameren facilities. A specific route hasn’t been chosen. If all goes as planned, construction could begin as soon as 2014 and be complete by 2016, Lawlor said.

Developers have a lot of work to do in the meantime. They need approval from federal and state regulators. Then there’s siting and permitting issues and negotiations with land owners, who often object to the installation of infrastructure many consider unsightly.

“We’re spending a tremendous amount of time up front to identify a route that has the least impact,” Lawlor said.

‘TOLL ROAD’

Clean Line Energy applied in March with the Kansas Corporation Commission to be approved as a public utility in the state. The company is expected to seek permission from the Missouri Public Service Commission next year.

Lawlor said the project would be privately financed and ultimately paid for by utilities, their customers, other wholesale power buyers and renewable energy generators that buy capacity on the line. Rates will be set by the Federal Energy Regulatory Commission. Clean Line Energy would maintain the line, but it would be controlled by a regional grid operator.

Who pays for intrastate transmission projects is frequently a thorny issue. Clean Line Energy seeks to avoid such disputes because only transmission customers will pay for it.

“This is like a toll road,” he said. “You don’t pay for it if you don’t use it.”

To help sell the project, Clean Line says the project will be an economic boon for Kansas and Missouri, stimulating $7 billion in new wind power projects and hundreds of permanent jobs in western Kansas and thousands of construction jobs along the entire route, according to a study prepared for the company by St. Louis-based Development Strategies.

Of course, any economic benefit is secondary to the main purpose of the project, to accommodate growing renewable energy demand without breaking the bank.

The Department of Energy’s National Renewable Energy Laboratory said last year in a technical study that the eastern half of the country - an area that’s home to 70 percent of the population - could get at least 20 percent of electricity from wind power by 2024, but it would require tens of billions of dollars in new transmission infrastructure.

PENT UP DEMAND

The study underscored the fact that wind development has outpaced transmission infrastructure, prompting new companies to sprout up to help satisfy a backlog of demand. Those companies include independent transmission developers such as Clean Line Energy as well as utilities such as Ameren, which have formed transmission subsidiaries.

Ameren announced last year a $1.3 billion series of transmission projects spanning more than 500 miles in Illinois. The Illinois projects, collectively referred to as the Grand Rivers projects, is aimed at least partly at moving wind power to the east.

“Ameren is working closely with Clean Line Energy to reliably integrate their project into the transmission system,” said Maureen Borkowski, CEO of the Ameren subsidiary. “We believe it will mesh well with Ameren Transmission’s plans.”

Ameren Transmission plans to target Missouri for its next initiative, but nothing has been announced publicly.

Clean Line Energy is owned by Ziff Brothers Investments LLC and Michael Zilkha of Houston, who previously owned Horizon Wind Energy LLC. Several former Horizon executives are part of the company’s senior management.

The Grain Belt Express project is one of four long-haul transmission projects the company is developing.

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Confronted with faulty instrument readings and alarms going off in the cockpit, the pilots of an Air France jetliner struggled to tame the aircraft as it went into an aerodynamic stall, rolled, and finally plunged 38,000 feet into the Atlantic Ocean in just 3 1/2 minutes.

But the passengers on that doomed Rio de Janeiro-to-Paris flight were probably asleep or nodding off and didn’t realize what was going on as the aircraft fell nose-up toward the sea, the director of the French accident investigating bureau said after releasing preliminary black-box data on the June 1, 2009, disaster.

All 228 people aboard the Airbus A330 died.

The brief, highly technical report by the BEA contains only selective remarks from the cockpit recorder, offers no analysis and assigns no blame. It also does not answer the key question: What caused the crash?

But several experts familiar with the report said the co-pilot at the controls, at 32 the youngest of the three-man cockpit crew, Cedric Bonin, may have responded incorrectly to the emergency by pointing the nose upward, perhaps because he was confused by the incorrect readings.

The plane’s external speed sensors, called Pitot tubes, have long been considered a likely culprit in the disaster, with experts suggesting they may have been iced over. And the BEA investigators found that two sets of instruments on the plane gave different speed readings, with the discrepancies lasting less than a minute.

Since the accident, Air France has replaced the speed monitors on all its Airbus A330 and A340 aircraft.

An official at Airbus said the aircraft’s nose should have been pointed slightly downward to enable the plane to regain lift after it had gone into an aerodynamic stall.

“This is part of the general pilot training for any aircraft,” said the official. He was not authorized to speak on that subject and asked not to be identified by name.

Other aviation experts concurred. In an aerodynamic stall, a plane most often loses lift because it is traveling too slowly, and begins to fall out of the sky. Pointing the nose downward enables the aircraft to pick up speed, gain lift and pull out of the stall.

Pulling the nose up is “an inappropriate way to respond” to an aerodynamic stall, said Paul Hayes, director of air safety for aviation consulting firm Ascend Worldwide Ltd. “He either misidentified what was happening or became confused.”

He cautioned that Friday’s report was brief and that it was still unclear how the series of events started.

The flight data recorder and cockpit recorder were dredged from the ocean in early May, along with some bodies.

They showed, in addition to inconsistent speed readings, two co-pilots working methodically to right the plane manually after autopilot stopped. Captain Marc Dubois returned from a routine rest to the cockpit amid what moments later became an irretrievably catastrophic situation.

After the plane went into a stall, warnings sounded, the autopilot and autothrust shut off as designed, and the co-pilot not at the controls “tried several times to call the captain back,” the BEA report said. The captain returned one minute and 10 seconds later, when the plane had climbed to 38,000 feet.

“During the following seconds, all of the recorded speeds became invalid and the stall warning stopped,” the report said, but added that the plane never came out of its aerodynamic stall.

“The airplane was subject to roll oscillations that sometimes reached 40 degrees,” the report said. The engines never stopped operating and “always responded to crew commands,” the BEA said.

“The pilots never panicked,” BEA director Jean-Paul Troadec said on RTL radio, adding that they maintained professionalism throughout.

The passengers, he suggested, probably fell to their deaths without knowing they were doomed.

Dinner had been served and “you can imagine that most passengers were already asleep or nodding off,” Troadec said. He said the cabin crew never contacted the cockpit to see what might be wrong.

“It seems they didn’t feel more movements and turbulence than you generally feel in storms, so we think that till impact they did not realize the situation,” said Jean-Baptiste Audousset, president of a victims’ solidarity association, “which for the family is what they want to hear, they did not suffer.”

He was among a group of representatives of families who met with BEA officials to be briefed on their findings.

At least one expert disagreed with the theory of a soft descent.

Data from the flight recorders shows the plane was falling almost 11,000 feet per minute (124 mph, or 200 kilometers per hour), its nose slightly tilted upward.

“Eleven-thousand feet a minute is a huge rate of descent,” said Ronan Hubert, who runs the Aircraft Crashes Record Office in Geneva. “I would say some of the people on board would have lost consciousness.”

The crew had feared turbulence, and more than eight minutes before the crash the co-pilot at the controls advised the cabin crew “you should watch out” for turbulence ahead. He said the plane could not climb out of the cloud layer where the turbulence was happening because it was not cold enough.

Turbulence caused the pilots to make a slight change of course, but was not excessive as the plane tried to pass through the clouds.

Four minutes later, the plane’s autopilot and autothrust shut off, the stall alarm sounded twice and the co-pilot at the controls took over manual control. A second co-pilot, David Robert, 37, was also in the cockpit.

Pilots on long-haul flights often take turns resting to remain alert. After Dubois returned to the cockpit, he did not take back the controls.

Just over two minutes before the crash, Bonin is heard to say, “I don’t have any more indications.” Robert says: “We have no valid indications.”

Air France said in a statement that, based on the report, it appears “the initial problem was the failure of the speed probes which led to the disconnection of the autopilot” and loss of pilot protection systems.

The airline defended the captain, saying he “quickly interrupted his rest period to regain the cockpit.”

Independent aviation analyst Chris Yates said the report appears “to raise more questions than it answers.”

“It would seem to me, reading between the lines, that the cockpit crew weren’t confident of the information that was being presented to them on the data displays,” Yates said. “Maybe _ and it’s only a maybe _ they took some action that led to the stall warning, and the plane stalling and then being unable to correct it.”

A new, but not final, report with some analysis is to be issued in July.

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Several dozen residents from the town around Japan’s crippled nuclear plant have been allowed back to their homes briefly to collect belongings for the first time since the complex went into crisis after a devastating tsunami.

Residents of Futaba were among the 80,000 people evacuated from the area soon after the March 11 disaster, and most have not been able to return.

Many evacuees had no idea how long the crisis would drag on and left with only the clothes they were wearing and their purses or wallets.

Residents of Futaba were allowed to stay at their homes for two hours only, and given one large plastic bag in which to collect their things due to space restrictions and fears of contamination.

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Stock futures rose Tuesday, a day after fears about European debt sparked steep declines in financial markets around the world.

Ahead of the opening bell, Dow Jones industrial average futures are up 39, or 0.3 percent, at 12,401. Standard & Poor’s 500 futures are up 5, or 0.4 percent, at 1,319. Nasdaq 100 futures are up 7, or 0.3, at 2,322.

The modest advance in futures trading came despite more troubling news about the state of European debt management.

Greece’s main opposition party said it opposed the government’s new austerity measures. The announcement dashed hopes that the country might be able to repair its finances enough to get another loan package from the International Monetary Fund.

Ratings agency Moody’s warned that a Greek restructuring of its debt would constitute a default. Moody’s said such a move would hurt the credit ratings of Greece and other debt-laden European countries. The ratings agency also said it would review 14 British financial institutions for a possible downgrade.

Nonetheless, European stocks recovered Tuesday after Monday’s declines.

The FTSE 100 index of leading British shares rose 0.4 percent in midday trading. Germany’s DAX rose 0.7 percent and the CAC-40 in France was 0.2 percent higher. The euro also rose slightly against the dollar after falling to a two-month low Monday.

In economic news, the Commerce Department is expected to report at 10 a.m. Eastern on how many new homes were bought in April, offering traders a glimpse at the housing market.

Analysts expect sales to have been roughly flat, rising slightly to an annual rate of 303,000 from 300,000 in March. That is still far below the 700,000 in annual sales seen as representing a healthy market.

New homes are unappealing to budget-conscious families because their median price is nearly 31 percent higher than previously-occupied homes. That’s twice the price difference typical of a healthy economy. At their current rate, new-home sales are on track to experience a sixth straight year of declines.

The Dow fell as much as 180 points Monday before paring back some of its losses after Greece, Italy and Spain suffered weekend setbacks in their attempts to control their debt. The Dow fell 130.78 points, or 1 percent, to close at 12,381.26.The S&P 500 index lost 15.90, or 1.2 percent, to 1,317.37. The Nasdaq dropped 44.42, or 1.6 percent, to 2,758.90.

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A Chinese manufacturing index fell to its lowest level in 10 months, adding to signs that economic growth is cooling after the government raised interest rates and curbed lending to rein in inflation.

The preliminary purchasing managers’ index compiled by HSBC Holdings Plc and Markit Economics dropped to 51.1 in May from a final reading of 51.8 in April. A number above 50 indicates expansion.

Stocks in China extended declines after the report, with the benchmark index dropping to its lowest since February, on concern the government’s measures to tame inflation will damp growth and corporate earnings. Vice Premier Wang Qishan reiterated this month that the government’s top priority is to control price increases.

The data “confirms growth is slowing, which will likely dampen price pressures and limit scope for monetary tightening,” said Dariusz Kowalczyk, senior economist at Credit Agricole CIB in Hong Kong.

The benchmark Shanghai Composite Index fell 1.9 percent to 2,803.15 at the 11:30 a.m. local-time break, heading for the third straight daily decline. The yuan declined 0.08 percent to 6.4976 per dollar at 12:09 p.m.

HSBC’s preliminary manufacturing index, called the Flash PMI, is based on 85 percent to 90 percent of the total responses to its monthly purchasing managers’ survey sent to executives in more than 400 manufacturing companies.

Domestic Tightening

New export orders contracted in May and stocks of purchases and finished goods fell at a faster rate, HSBC said. An output gauge declined to a 10-month low, although it remained above the 50 level that divides expansion from contraction, the bank said.

The preliminary reading is “well below the series’ long- term average of 52.3,” Qu Hongbin, a Hong Kong-based economist at HSBC, said. Domestic tightening and disruptions to supplies caused by the earthquake, tsunami and nuclear crisis in Japan likely affected manufacturing, he said.

The People’s Bank of China has raised borrowing costs four times since mid-October and curbed lending by raising banks’ reserve requirements to rein in inflation that’s exceeded the government’s 2011 target of 4 percent every month this year. The central bank is focused on containing inflation and will “control the monetary conditions behind excessively rapid gains in prices,” Governor Zhou Xiaochuan said in the PBOC’s annual report released May 17 cash advance america.

Beijing’s Priority

“Price stability will continue to outweigh growth as Beijing’s top priority in the coming months,” especially as inflation may accelerate until mid-year, HSBC’s Qu said. “Current tightening measures must be kept in place for a while longer to manage inflationary expectations.”

Industrial output growth weakened last month and the worst power shortage in seven years is hurting production at some factories as provinces start curtailing electricity supplies.

Many companies in the eastern province of Zhejiang, a manufacturing hub, are using diesel generators because of rationing, state-run China Petrochemical Corp., the country’s biggest fuel supplier, said on May 17.

The shortages may depress the nation’s economic growth by 0.4 percentage point this year, Industrial Securities Co. said in a May 20 report.

Fixed asset investment expanded 25.4 percent in the first four months of the year and exports jumped 29.9 percent last month, both exceeding analysts’ estimates, factors that may help support growth.

Tame Inflation

“Cooling growth is not all bad news as it also helps to tame inflation,” Qu said. The preliminary index’s input price gauge was at its lowest level since August 2010 and growth in output prices eased to 54.6 in May from 55.2 in April, he said.

The economy won’t experience a “hard landing” and any slowdown is “controllable,” Fan Jianping, director of economic forecasting at the State Information Center, a research institute affiliated with the National Development and Reform Commission, said at a Shanghai conference on May 19. He estimated growth will moderate to 9.5 percent this year from 10.3 percent in 2010.

–Zheng Lifei. With assistance from Regina Tan in Beijing. Editors: Nerys Avery, Ken McCallum

To contact Bloomberg News staff on this story: Zheng Lifei in Beijing at +86-10-6649-7560 or lzheng32@bloomberg.net

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The traditional cottage country spring real estate market has been delayed by unseasonably cool weather, and the Victoria Day weekend looks to be a bit of a washout.

But realtors are hopeful that this year will be better than last as the economy shakes off the shackles of the recession and enters a recovery mode.

A private research group’s forecasting gauge suggests some bumps in the economic recovery this summer.

The Conference Board said Thursday its index of leading economic indicators dropped 0.3 percent in April, the first decline since June 2010.

The index had moved sharply higher in four of the past five months as the job market improved and the stock market rallied. Last month’s spike in the number of people filing for unemployment assistance _ which many economists viewed as a temporary event _ and a troubled housing market weighed on the indicators. A measure that suggested the resurgence in the manufacturing sector was slackening also hurt.

In April, only four of the measures the Conference Board uses to calculate the index increased. Six declined.

Conference Board economist Ken Goldstein says “economic growth will likely continue through the summer and fall, but the pace of economic activity may be choppy.”

The dip in the leading indicators may be temporary, said High Frequency Economics’ economist Ian Shepherdson. Natural disasters around the world, particularly Japan’s massive earthquake and tsunami in March, disrupted industry supply chains this spring. Initial unemployment claims, which jumped to an eight-month high of 474,000 last month, fell back to a seasonally adjusted 409,000 last week, the Labor Department said payday loans in 1 hour. Claims around 375,000 or lower are consistent with sustainable job growth. Shepherdson expects claims to continue falling in summer as business hiring picks up.

But many economists are notching down their expectations for economic growth this year, partly because they expect higher oil prices will weigh on consumer spending. Earlier this week, economists surveyed by the National Association for Business Economics predicted that the economy would grow 2.8 percent this year, down from February’s 3.3 percent forecast.

The Conference Board, a private research group based in New York, compiles data that has mostly already been released about real estate, manufacturing, employment, consumer confidence and financial markets. It uses that data to calculate the leading indicator index. The Conference Board also includes its own estimates about manufacturers’ new orders and the country’s money supply.

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U.S. Treasury Secretary Timothy F. Geithner said budget deficits threaten to erode the nation’s economy and security and can’t be reduced with “magical thinking.”

“Neither Congress nor the administration should be able to use unrealistic assumptions about future economic growth or future political courage, or other forms of magical thinking, to minimize the magnitude of the reforms that will be necessary,” Geithner said today in a speech at the Harvard Club in New York.

Geithner said U.S. “fiscal problems are so pressing that they threaten to undermine the foundations of our future economic strength” and the country’s ability “to protect our national security interests.”

Lawmakers and the Obama administration are trying to reach a bipartisan accord on cutting long-term deficits as part of a plan to raise the legal limit on the national debt. Senate Republican leader Mitch McConnell of Kentucky said his party wants “significant” cuts in spending and no tax increases as a condition for lifting the limit.

In response to a question, Geithner said the U.S. benefits from global confidence in the dollar, especially during times of financial and economic stress when investors turn to the currency as a safe haven.

“That is an important thing we want to preserve and protect about the United States,” he said. He declined to comment on recent investment trends for the dollar and other currencies.

Debt Ceiling

On the debt ceiling, the U.S. was $25 million under the $14.294 trillion limit as of yesterday, according to Treasury data released today. Geithner said yesterday he had taken measures to stay below the limit until Aug. 2.

The ceiling “relates only to commitments we have made in the past,” Geithner said today. “Rather than debating whether we should pay our past bills and whether default would in fact be so bad; rather than designing schemes to allow us to continue to make interest payments by breaking our commitments to seniors and veterans, we should be working together to narrow our differences on how to solve the causes of future deficits.”

Geithner wrote lawmakers to say he had declared a “debt issuance suspension period,” which allows him to free up borrowing room from the Civil Service Retirement and Disability Fund and the Government Securities Investment Fund. The steps, widely expected as Republicans and Democrats argue over when and how to raise the debt cap, won’t affect retirees or government operations.

‘Not an Option’

Geithner reiterated today that “the debt limit must be increased. It is simply not an option for Congress to evade the basic responsibility to protect America’s creditworthiness.”

In his first public comments related to the arrest over the weekend of International Monetary Fund Managing Director Dominique Strauss-Kahn on sexual assault and attempted rape charges, Geithner said the IMF needs to get its leadership in place because its chief is “obviously not in a position” to run the lender. Geithner also said John Lipsky, the IMF’s acting managing director, is competent and capable.

On fiscal issues, Geithner said the administration’s effort to overhaul the corporate tax code to reduce deductions and loopholes likely won’t be completed in the next two months because it is trying to tackle broader budget issues.

“We’d like to take a run at doing this ahead of the election,” he said.

Geithner said the U.S. should get its deficit below 3 percent of gross domestic product, from 10.9 percent of GDP projected for the current fiscal year ending Sept. 30. The U.S. also needs a “debt cap so that politicians cannot choose to live with unsustainable deficits,” he said.

Speaking later on a panel after a screening of the HBO film “Too Big to Fail,” Geithner said Europe has the capability to handle the region’s debt crisis. “They just have to do it,” he said.

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European ministers will hammer out the final details of Portugal’s bailout and discuss more help for Greece on Monday at a meeting overshadowed by the arrest of the International Monetary Fund’s managing director Dominique Strauss-Kahn.

The prevailing view in the markets is that Strauss-Kahn’s arrest in New York on charges he sexually assaulted a hotel maid is unlikely to derail Portugal’s euro78 billion ($111 billion) bailout or affect talks on whether to give Greece more help beyond its current euro110 billion rescue.

“We doubt his arrest will change the course of negotiations,” Derek Halpenny, European head of global currency research at The Bank of Tokyo-Mitsubishi UFJ, said of Strauss-Kahn. “The key aspect of agreeing another bailout for Greece lies with the eurozone finance ministers and not the IMF.”

The reaction in the markets was guarded, with the euro trading 0.3 percent higher at $1.4119 in late-morning trading in London. Earlier, however, the single currency had fallen as low as $1.4046, its lowest level since March 29.

Strauss-Kahn had been due to join the European finance ministers over the coming two days after a scheduled meeting Sunday with German Chancellor Angela Merkel, whose stance on Europe’s debt crisis is crucial. Nemat Shafik, a deputy managing director who oversees IMF work in several EU countries, will take Strauss-Kahn’s place at the Brussels get-together.

For Portugal, ministers will consider some amendments made by Finland as a condition of approving the aid despite skepticism from key political parties. They include a firmer commitment from Portugal to privatize assets to help pay for the bailout.

Discussions of Greece will likely not lead to a detailed announcement of potential new aid measures, although there is growing acceptance that last year’s bailout was not enough.

Ministers won’t make any firm commitments before a mission of experts currently in Athens conclude their review of the implementation of the existing program and determine how much more money the country may need in the coming years. However, Monetary Affairs Commissioner Olli Rehn and the President of the European Central Bank Jean-Claude Trichet were expected to brief ministers on the initial findings of the review.

The euro members, notably Germany, have contributed the lion’s share of Europe’s bailouts to Greece and Ireland and the upcoming Portuguese handout. Though the IMF has also stumped up billions of euros _ it provides around a third of the bailout funds _ its main purpose has been in giving the austerity programs credibility. Strauss-Kahn has been a key advocate of the strategy.

The IMF has named John Lipsky, Strauss-Kahn’s deputy, as acting leader and said it remains “fully functioning and operational” despite Saturday’s arrest of its managing director. Strauss-Kahn is due to appear in court later Monday for formal charging following medical and forensic tests.

Amadeu Altafaj Tadio, spokesman of the EU’s Rehn, sought to dampen any fears that Strauss-Kahn’s arrest would have a major impact on the crucial discussions

“I see no reason to have any doubt about the continuity of the efforts,”Altafaj-Tardio said when asked whether Strauss-Kahn’s arrest would have any impact on the EU’s and the IMF’s efforts to fight the European debt crisis.

About John Lipsky he said he is “a skillful man” who “has a very strong knowledge of Europe.”

In the longer-term, analysts said, the arrest of Strauss-Kahn could trigger an overhaul at the Washington DC-based fund, not least whether it will continue to be headed by a European, as it has been since its creation after World War II.

“His (Strauss-Kahn’s) personal involvement in pushing for a greater role for the IMF post-Lehman has been important and indeed he has been heavily involved in the European bailouts,” said Robert Ryan, an analyst at BNP Paribas. “Should he step down, any changes in approach by his successor will be important.”

Strauss-Kahn had been widely expected to quit his post later this year in order to launch a bid for the French presidency in next year’s election, so the markets had been well-prepared for his potential departure.

A key question being debated is whether Strauss-Kahn’s arrest makes it more likely that the IMF will be headed up by someone outside the EU, possibly from one of the emerging economies.

The existing convention is that the European Union proposes the IMF’s managing director, while the U.S. proposes the president of the IMF’s sister organization, the World Bank.

However, the arrangement is increasingly considered anachronistic, not least because Europe is now a heavy recipient of funds from the IMF and the main cash injections come from countries like China.

Though Merkel said it was inappropriate to discuss a change at the top of the IMF, she indicated that the German government still thinks a European should still lead the organization.

“In terms of principle, without conducting this discussion here, we know that in the medium term, emerging countries certainly have a claim to the post of IMF chief as well as the post of head of the World Bank,” Merkel said in Berlin. “But I think that, in the current phase, in which we have a lot of discussions connected to the euro, there are good reasons for Europe also to have good candidates available.”

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Gabriele Steinhauser in Brussels and Geir Moulson in Berlin contributed to this story.

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