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.
Is it any wonder that Europe’s most indebted nations lined up for the free money? Foreign taxpayers have pledged $145 billion and $130 billion to bailout Greece and Ireland. Portugal and Spain are seeking rescues. President Obama has now committed the U.S. to a second Greek bailout, which could total another $100 billion. The IMF share of that figure will likely be large.
These bailouts only entrench bad behavior. Greece has been living beyond its means for years, with government spending accounting for 46.8% of GDP and its public debt exceeding 115% of GDP. One in three Greeks work for the government, enjoy far higher pay and lavish benefits compared to their private-sector counterparts, and are impossible to fire. Government workers can retire securely after only 35 years of service. This status quo is unsustainable.
If Greece doesn’t face up to its profligate ways, ordinary Greeks will suffer. The country’s big government has spawned an enormously corrupt state that robs the poor of opportunity and enriches the well-connected. The Brookings Institution estimated last year that bribery, patronage and other forms of public corruption lift the equivalent of 8% of GDP from the state’s budget annually, or more than €20 billion. Reining in corruption and plugging even a fraction of that hole would go a long way to enabling Athens to pay its own bills. But if Greece is bailed out again, what incentive do its politicians have to change their ways?
The IMF’s original mission was to support stable exchange rates, not bail out bankrupt states. Our organization, FreedomWorks, has long supported IMF reform. But given its recent behavior, perhaps it’s time to close it down once and for all, before more U.S. taxpayer money is wasted.
Messrs. Armey and Kibbe are, respectively, chairman and president of FreedomWorks. They are co-authors of “Give Us Liberty: A Tea Party Manifesto” (HarperCollins, 2010).
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