President Obama on Tuesday seemed to throw his support behind a second, huge International Monetary Fund (IMF) bailout of Greece that reportedly is in the works. While shifting responsibility for America’s economic recovery to Europe - “America’s economic growth depends on a sensible resolution of this issue” - Mr. Obama displayed a twisted view of a nation’s responsibility for its own budget and a dangerous willingness to use the IMF as an international bailout fund.
“Other countries in the eurozone are going to have to provide [Greece] a backstop and support,” Mr. Obama said. “And frankly, people who are holding Greek debt are going to have to make some decisions, working with the European countries in the eurozone, about how that debt is managed.”
There are proximity reasons for European nations to care about and even invest in a recovery in Greece. But Mr. Obama’s insistence that European countries once again bail out Greece reinforces an unsustainable “solution” and sets a dangerous precedent by telling other nations not to worry about being fiscally responsible because your neighbors will always be there to bail you out. Talk about moral hazard.
Mr. Obama’s comments may be frustrating to Europeans who would prefer to side with fiscal responsibility, but they also should concern Americans, who are being pulled unwittingly into the international bailout. While he repeatedly emphasized European countries’ “responsibility” to save Greece, Mr. Obama also committed to involving billions of U.S. taxpayer dollars “through international and financial institutions like the IMF.”
So, in spite of our own economic problems and trillion-and-a-half-dollar deficit, American taxpayers will have to work hard so that Greeks can retire at 50 and maintain their failed and bloated bureaucracy.
The IMF regularly has put the American taxpayers - as well as the taxpayers of other members - on the hook to bail out powerful banks and profligate foreign nations with poor economic policies. This time is no different, with Mr. Obama siding with the Wall Street banks against the American taxpayers. A recent study by the Bank for International Settlements found that American banks have some of the highest exposure to the toxic debt of Greece, Portugal and some of the other struggling European nations. The bailouts and loans rescue wealthy, politically connected bankers, investors and financiers at the expense of taxpayers. What is more damaging is the precedent they set, propping up the destructive bailout culture in our financial and government systems.
Before what could be a $100-billion second bailout of Greece, the IMF already contributed to the first, $145-billion bailout of Greece, a $130-billion bailout of Ireland and a $114-billion bailout of Portugal. Spain could be next, followed by Italy and Belgium.
The IMF may claim is it helping the nations it bails out, giving them sure footing to regain their strength and status. In reality, the fund is making the global financial crisis much worse, encouraging reckless behavior by holding out the prospect of a bailout to any country or large politically connected bank that fails. By extending credit - in Ireland’s case at 5.8 percent interest - the IMF profits by sustaining and subsidizing bankrupt economic policies.
Our suffering - in the United States and Europe - pales in comparison to the destructive effects of IMF policies on poorer and politically unstable nations. The cycle of dependency fostered by the IMF does not encourage pro-growth policies; it creates a horde of loan addicts - more than 70 countries have relied on IMF loans for more than 20 years. In poor countries, there are few if any signs that IMF loans do any good. Most of the countries that receive IMF loans are left worse off, with massive debts they cannot afford to pay, which only escalates poverty and instability. Often, the taxpayer-subsidized loans end up in the hands of corrupt dictators.
The United States has the power to end this financial tyranny. We are the only nation with the power to veto any major IMF decision requiring an 85-percent supermajority to pass. Unfortunately, the United States has never used its veto power to prevent such a loan, and Mr. Obama’s latest comments suggest we won’t anytime soon. The president’s eagerness to misuse the IMF and blame-shift on behalf of European debtors serves to illustrate the looming debt crisis he faces at home.
The fact is that Mr. Obama’s platitudes toward fiscal responsibility in Europe are hardly appropriate given his handling of the U.S. economy. His appeals to German Chancellor Angela Merkel to be a leader in resolving the European debt crisis would be better directed at a mirror.
Dick Armey and Matt Kibbe are, respectively, chairman and president of FreedomWorks. They are co-authors of “Give Us Liberty: A Tea Party Manifesto” (HarperCollins, 2010).