by Dick Armey & Matt Kibbe
Wall Street Journal
June 16, 2011
The one-year anniversary of the Greek bailout passed last month and now European politicians are talking about another emergency package. There's little doubt that the continent's taxpayers will once again be put on the hook by the European Union, mostly for bad bets made by German and French banks. That's their choice. But why are politicians pushing for taxpayers on the other side of the Atlantic to pay, too?
U.S. President Barack Obama and German Chancellor Angela Merkel pledged last week to work "both on a bilateral basis but also through international and financial institutions like the IMF" to prevent Greece from failing. The money isn't free: The U.S. provided $108 billion in global bailout money to the International Monetary Fund, thanks to 2009 supplemental appropriations. And representing 17.7% of the organization's quotas, the U.S. stands to lose more than the next three donor nations combined.
U.S. taxpayers can't afford to bail out Greece or any other nation right now. Washington faces a $1.65 trillion deficit, or 11% of GDP. To participate in a bailout, the Obama administration would have to increase taxes on U.S. citizens, borrow money or have the Federal Reserve crank up the printing press to create more dollars. All three of these options make American citizens poorer.
Nor is it clear that these actions would help Greece, or any other financially stretched nation, recover. History suggests the opposite is true. The Fund's advice to Argentina in the 1990s led that country into a destructive cycle of currency devaluations, capital controls and rampant, destructive inflation. The Fund gave similarly bad advice to Indonesia later that decade. Then the 2008 financial crisis happened and the Fund encouraged reckless behavior by holding out the prospect of a bailout to any nation or large, politically connected bank that fails.
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