LONDON (CNNfn) - French finance minister Dominique Strauss-Kahn resigned Tuesday amid allegations that as a practicing lawyer he was involved in party campaign funding irregularities before his Socialist party came to power in 1997.
Strauss-Kahn insisted he was innocent, as the corruption scandal threatened to engulf the French government. "If I am resigning, and I say this with conviction, it is not because I feel guilty in any way. I took this decision because I believe that morality and a sense of responsibility demand it," he said.
Prime Minister Lionel Jospin gave the newly vacated post to former Budget minister Christian Sautter.
The scandal is a major blow to the left-wing government, as Strauss-Kahn was credited with managing the resurgence of the French economy in recent years.
Strauss-Kahn was widely regarded in financial markets for his even-handed approach, after his party came to power in a coalition with communists and ecologists in 1997.
He was also one of the key architects of the single European currency, launched at the start of 1999, and was widely regarded as a future prime minister.
Strauss-Kahn's resignation follows a decision by the Paris prosecutor's office last Friday, which gave French investigators the green light to place the finance minister under investigation to answer allegations of fraud when he was a practicing lawyer.
No official probe has actually started, but in an unwritten code of honor, French government ministers who come under investigation have traditionally resigned.
The allegations center around $96,150 paid to Strauss-Kahn between 1994 and 1996 for allegedly fictitious legal work for MNEF, a student medical insurance group. One French newspaper said Monday that investigators had evidence that MNEF forged documents to try to justify the payment.
Strauss-Kahn said he wanted the earliest opportunity to explain to the justice authorities "the reality of my work and the size of my fees and any technical irregularities which may have been committed."
Leading MNEF officials have had close links with the ruling Socialist party for years and investigators suspect that the funds were used to bankroll the party in the run up to the election that brought it to power.
European politics has seen some high-level casualties in 1999. Strauss-Kahn is the second leftist European finance minister to resign after Germany's Oskar Lafontaine stepped down in March following a huge rift in the ruling coalition.
Lafontaine's departure was followed days later by the mass resignation of the executive arm of the European Union.
The euro and French blue chips both bounced back after Strauss-Kahn resigned. The single currency jumped from $1.0506 to $1.0520, while the CAC 40 index pared some of its earlier losses to trade down 33 points, having been 46 points lower in anticipation of the announcement.
-- from staff and wire reports