Margaret Thatcher, who is the subject of a new film starring Meryl Streep that will premiere in theaters this Friday, once said that the problem with European socialism was that it would eventually run out of other people’s money. That is a good summation of what has happened with today’s euro crisis. The politicians across the water have run out of other people’s money in their own countries, so now they want other nations to foot the bill.
Topping the list of potential suckers is the United States. Our Treasury secretary, Tim Geithner, has been in constant motion shuttling between the U.S. and Europe in recent weeks trying to contain the euro crisis. A study by the Fitch ratings agency warns that the exposure of the U.S. financial sector to European countries and banks is “sizable.”
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The Obama administration realizes that if Europe’s economies get sicker, the U.S. economy will catch cold and see unemployment rise. But one method of staving off that prospect that is being pushed behind the scenes by the Obama administration is increased U.S. funding of the International Monetary Fund, which is already on the hook for previous massive bailouts of European banks and financial institutions.
Many Republicans in Congress want nothing to do with any more taxpayer bailouts. They say that would only avoid the painful decisions Europeans have to make to rein in their profligacy. Over 60 House Republicans have signed on to legislation to pull back on U.S. funding of the IMF.
Because the U.S. provides some 17 percent of the IMF’s funding, Oklahoma senator Tom Coburn estimates the U.S. could be liable for as much as $176 billion if the IMF extends its existing bailouts to Italy and Spain and the euro collapses.
The GOP bill would start unraveling that by snatching back a $108 billion line of credit the U.S. approved in 2009 for a crisis fund at the IMF. So far very little of it has been spent.
Its sponsors would like to keep it that way. Cathy McMorris Rodgers of Washington State, a member of the House Republican leadership and the author of the bill, points out that European countries have yet to provide any guarantees that promised fiscal reforms will be enforced. “We need transparency in our dealings with the IMF, and we aren’t getting it. Congress has to make clear that we don’t believe further bailouts in Europe will work, and the U.S. shouldn’t be a part of them,” she says.
Indeed, Greece has already gotten bailouts from the European Union and the IMF equal to $28,000 per Greek adult. Portugal and Ireland have received sums in the same neighborhood, but the debt-to-total-economy ratio of all three countries continues to grow, a sure sign that they are resisting real structural reforms. “Rather than participating in Europe’s version of TARP, America must focus on solving its own $15 trillion debt problems,” says Sen. Jim DeMint of South Carolina, who is carrying the Senate version of Representative McMorris’ bill.
There is no doubt such views are in accord with U.S. public opinion. If the euro continues to sink, the issue of bailouts to Europe could surface in the Republican primaries.
Americans for Limited Government commissioned a survey from the Polling Company last month in early GOP-caucus and -primary states. The results were unequivocal. In Iowa, which holds the first test for GOP presidential candidates next week, 76 percent of registered Republicans opposed any increased U.S. funding of the IMF. In New Hampshire, it was 68 percent, and in South Carolina, opposition hit 77 percent.
The 17 nations in the eurozone are now trapped between the unthinkable and the unsellable. Ending the euro is considered so radical a step that there are no backup plans for leaving it behind. But further integration of Europe’s economies is unpalatable because it would have to be sold to populations that, as the Washington Post put it, “were more skeptical about the Eurozone than their leaders to begin with, and have seen their worst fears realized.”
No one can predict with certainty just how bad the euro’s problems will become, but it’s safe to say that further involving the U.S. taxpayer in yet another bailout of Europe would only be putting a Band-Aid on the problem. Republican presidential candidates would be wise to highlight the efforts of the GOP congressmen fighting U.S.-taxpayer exposure in Europe’s mess, and given the continued public bitterness over the TARP bailout of 2008, it would certainly be smart politics.
I would guess most Americans, regardless of Party, would be totally opposed to any further involvement in Europe's own crisis. When we haven't gotten serious about fixing our own mess, why would we entangle ourselves any further in theirs? I'll go out on a limb and say -- if we do get involved over there, there are going to be a bunch of ticked-off Americans, and Republicans had better be on the right side of this mess.
And what pray tell is the temporary U.S. dollar liquidity swap arrangement with the ECB? When is a loan not technically a loan? Even the former Dallas Fed VP has said that the 'Federal Reserve is engaged in a bailout of European banks'. The German press reported last week a $33 billion 'loan' to European banks financed by a Fed/ ECB swap. All courtesy of the US taxpayer.
I see the swap lines differently. They aren't bailing out the EU so much as allowing American Money Market Funds and Ins Cos. to extricate themselves from the EU banks. Ben Bernanke's job is to firewall off the EU as much as possible from the US, so millions of Americans do not lose their life savings in the event the EU banking system implodes. By swapping dollars for Euros, Ben is allowing EU banks to roll over their dollar debts, while US funds are running away. If the EU implodes, we will be glad he did this.
Were one to read the NY Times and Paul Krugman, you would think the entire solution to the European issue is for central banks (including ours) to print more money and to use the proceeds to buy government debt of those nations most on the cusp in order to lower their borrowing costs. That such wouldn't even begin to address the root causes of Europe's troubles is beside the point as the left sees the real issue as maintaining social spending at current levels no matter what.
Which is also why the left cannot be depended upon to help resolve our own mess. When it cannot even recognize the role of its favored programs in producing an untenable fiscal mess, but continues to insist on simply more revenue (but only from those feckless rich - yet another fantasy), it is clear that no fundamental reform will come except with a clear electoral victory across the board for the GOP in 2012.
Asking European governments to develope public spending austerity, is like asking the Obama and Congress to become austere ... it ain't going to happen. They will drive the country into the ground and still be able to live comfortably. Only persons who truly believe in sacrifice instead of self-indulgence should lead governments. Obama must go and we need term limits.
I concur completely! NYYT/ Krugman (the "pit bull" of economics) - THEIR controlling view IS the problem with contemporary economics - one which ultimately relies on public assumption of bad macro decisions while privately retaining the gains, gains which later serve as kickbacks to the political elite who provided the financial safetynet to begin with. Think Solyndra!
The truly pernicious and troubling aspect of this is that those in power consistently sustain the game being played yet are fully cognizant of the increasing risks at each turn. However, for them, it's the "thrill of the hunt" and the adrenaline rush of the power they accrue. To the people, it's not fair to attribute a "take care of us" condescending quip. To the contrary, MOST folks are busy sustaining the societies in which they live. They raise their families, they work at jobs, buy things, pay taxes and ARE the engine of what makes a country, a society what it is. BUT - We, The People - have put too much trust into our government and the people we elect therein to drive this life we've created for us. We need to straighten out the ship and retain some control.
We start by realizing that the foolish underpinnings of today's economic rules will doom us every time we spin the dial. You can't sustain growth solely based on high leverage. SOME leverage helps, but not the way we've gone. Greenspan and other savant idiots of his mindset just could never figure that out. And for all their PhDs, accolades from other savants, and self directed acclaim - it hasn't really gotten us to a warm and cozy place.
To paraphrase an old saying, "doing the same thing over and over and expecting different results is a clear sign of insanity". Maybe we should, after 60 years step away from the FDR path of fiscal ruin and dependency. Maybe, just maybe We The People should re-take the ship and set this ship on a different course.
And your precious next in line Mitt Romney stated in the Bloomberg Channel debate he approves of the Fed bailing out EU nation states. The Bloomberg Channel set sure liked hearing Romney's support for the financial status quo as his campaign coffers and endorsements show. Mitt spent $35 million of his own money greasing the skids on his last failed election but no need this time around. What has Mitt Romney ever done, outside of splashing his cash, to advance a conservative cause?
But the Tea Party formed to end crony corruption and the feckless currently serving, in Congress and media, who sweep Obama's backdoor bailouts (green, EU, union, rent-seekers, stimulus eggs, etc.) from public debate. Americans would never condone loans-for-austerity servitude of peoples, allies or not. Furthermore, are you prepared to legitimize let alone defend the deposed elected governments of Greece and Italy replaced with EU appointed technocrats? Is this how democracy dies?
You can't change the math. The euro will fail, and set "Europeans" free from nation state crushing Brussels central planning, regulation and crisis proposed Financial Union (FU!) servitude to awaken patriotism, individual liberty, and competition and innovation. It's a good thing. In fact, Rick Santorum touched on this recently, “bureaucratic socialism... It's still private ownership, but bureaucrats are managing it.” Socializing losses and privatizing profits. Evil.
Wait a minute. Ben Bernanke at the Federal Reserve 10/18/11 transferred a $154 trillion bailout to US taxpayers from Bank of America and JP Morgan guaranteeing European Credit Default Swaps Derivative Trades that was not covered under the Dodd-Frank Reform Bill. Thanks Ben.
I doubt that either the Republican or Democrat establishments care one whit what the American people think. Progressives Obama and Romney favor helping the Socialist EU out. After all, the cronies must look out after their own. And if that means screwing over the poor and middle class by printing the dollar into near worthlessness, so be it.
I like John's work and commentary, but on this one I've just got to disagree.
What we should do is simple: give them every darn dollar they want. In fact, print it on special purple hundred dollar bills. But take off the "In God We Trust" and replace with "As Good as You Think it is" (I mean, I don't want to be blasphemous here and have some tight a _ s Imam issuing fatwahs on this!
But give them everything. They can pretend to feel better and we can pretend it's really anything of value we gave them. And as long as both keep up the pretense, it'll work.
If it doesn't, well, we'll all go down the drain together. Failure at least would send everyone a clear message that perhaps it's time to start on a new and improved path. This will at least get our lazy selves as Prez Obama calls us, off the couch and on the way to doing something. Ridding ourselves of all currently serving politicians - ALL of them would be a prudent first step. The rest? Well, painful - for sure. But at least we'll start to solve things now rather than toss that down the road for our kids and grandkids as well.
