French people give their reaction to news that the Strauss-Kahn case could collapse Reuters

The prosecution case against Dominique Strauss-Kahn, the former head of the International Monetary Fund and French presidential hopeful accused of sexually assaulting a hotel maid, is close to collapse according to sources close to the case.

The New York Times reported claims that significant problems have emerged with the case against the former IMF boss that could see the conditions of his house arrest in New York being relaxed with immediate effect.

Based on interviews with two unnamed law enforcement officers, it says "major holes" in the case will be admitted to state supreme court in Manhattan as early as Friday.

France's former Socialist prime minister Lionel Jospin described the latest developments as a "thunderbolt," and the news fuelled speculation among Strauss-Kahn's allies that he could eventually return to politics.

Bernard-Henry Lévy, the philosopher who has fiercely defended Strauss-Kahn, expressed his "great joy for the man, his family, and for principle".

At the centre of the potentially dramatic turn in the case, the New York Times reports, is lack of confidence on the prosecution side in the witness's testimony about herself and what she says happened to her in Strauss-Kahn's room at the Sofitel hotel in Manhattan on 14 May. After she alleged that he sexually assaulted her, New York authorities swept into action, arresting Strauss-Kahn as he waited to take off on a flight to Europe.

Separately, the Associated Press reported that prosecutors have raised issues about the woman's credibility, citing an official who is familiar with the case as saying the issue was not necessarily about the rape accusation itself, but rather questions surrounding the alleged victim's background that could damage her credibility on the witness stand.

Lawyers in the defence team for Strauss-Kahn have suggested they have evidence calling into question the veracity of the maid's account, but until now the nature of the doubts has not been revealed.

She has already testified before a grand jury about the charges in New York and convinced them of the merits of her case.

But a source close to the case said the district attorney's office took the case to a grand jury without fully checking out the woman's story. "Just about everything that was reported on this woman early on was untrue but no one checked or wanted to believe anything else," the source told Reuters.

Lawyers for the maid – who is not being named – were unavailable for comment. Contacted in Guinea, the woman's brother said that she was the victim of a smear campaign. "These are lies that have been invented to discredit my sister," he told Reuters.

The sexual nature of the encounter between the French politician and the maid has never been questioned by either side. But the New York Times report suggests that police and prosecuting lawyers have concluded that the 32-year-old Guinean-born maid has lied repeatedly.

The newspaper says that police recorded a telephone conversation between the woman and a man in prison on the day of the alleged rape in which the woman talked about the possible financial benefits that could come to her as a result of pursuing charges against Strauss-Kahn. The newspaper also reports the investigation has found deposits made into her bank account totalling $100,000 (£60,000) over the past two years, some of which came from the man, a convicted drug dealer.

If the case against Strauss-Kahn does collapse, it is likely to raise questions about what has happened to him and his future prospects. Strauss-Kahn was expected to run for the French presidency after stepping down from his post as managing director of the IMF, one of the most important roles in world finance. But after his arrest he was forced to resign. The job has just been filled by the French finance minister, Christine Lagarde. His incendiary demise left a gaping hole in domestic French politics.

This week, the Socialist party launched its primary race for a candidate on the basis that Strauss-Kahn's political career was over. But the dramatic developments in New York have prompted some members to call on the party to suspend the process.

Martine Aubry, the former Socialist chief, had intended to back Strauss-Kahn's presidency before his arrest, but this week declared she wanted to run for president herself. She said that "as a friend of DSK" she felt "immense joy" at the latest news, but refused to comment on her own presidential bid or whether the Socialist primary race could be suspended or changed.

The development will also play to the scepticism of the French public. When the allegations first surfaced, polls showed that 60% of French voters thought it was a political conspiracy against Strauss-Kahn.

The news follows weeks of speculation in which some legal experts had said the woman's case had started to look shaky. Her original lawyer, Jeffrey Shapiro, and renowned civil rights lawyer Norman Siegel are no longer working with the woman and have declined to comment about the decisions.

Harvard law professor Alan Dershowitz told Newsweek earlier this month he believed the woman's lawyers were working with Strauss-Kahn's lawyers and looking to broker a deal.

Dershowitz said: "Clearly the defendant wants to avoid trial and wants to see if he can work out a deal that's acceptable to him. And my sense is that the victim would like a big payday. Why does she want to make a deal now? Why not wait until the conviction, and then sue? [Because] the defendant doesn't have much money. All the money is his wife's money. And if you win a suit – let's assume she wins a $10m judgment against him – she's not going to collect it. He'll go bankrupt. Whereas if she settles the case, the wife pays up. So the difference is between getting, say, a million right now from the wife, or $10m from the husband which the lawyer has to spend the rest of his life chasing."

Making any such deal would threaten charges of obstruction of justice. The woman has no power to stop the criminal case being brought by New York district attorney Cyrus Vance and could be compelled to testify even if she decided not to co-operate, said Stuart Slotnick, a crime expert with Buchanan Ingersoll & Rooney.