Americans, How Do You Feel About Bailing the Whole EU? You’re About to Find Out

by Darwin on December 1, 2010

While it wasn’t widely publicized previously, US taxpayers have already subtly bailed out two failing EU nations via IMF loans.  See, when Greece was on the verge of default, and now Ireland, part of the loan package was via IMF funding, of which the US is the largest shareholder at 17%.  Given the Hundreds of Billions in bailout dollars required for those two countries, US taxpayers have conceivably already contributed north of $20 Billion to bail out these rather small nations (Ireland’s GDP is about that of Connecticut).  What’s next though, is Spain, Portugal, France and then the Full Monty.  Sovereign bond spreads over German bunds are spiking, which indicates markets are losing confidence in the ability of these weak EU members to continue to roll over debt obligations.  It appears as though bailouts of larger economies are on the way.  While frustrated officials speak of market “wolf packs” and bond vigilantes pushing bond yields up, it’s called: a Vote of NO Confidence.

The US Just Ponied Up for More

Today, Reuters quoted a US official as saying that the US was ready to back a BIGGER EU Stability Fund.  This is short for more US taxpayer bailout money for Europeans who spent like, well, Americans.  So, shame on us once for not having our own finances in order.  But shame on us again for bailing out other nations that have spent so wantonly that bondholders are no longer willing to lend to them at rates that they can reasonably repay.  The Ponzi scheme is coming to fruition, but rather than allowing it to collapse, whereby the Euro implodes, countries restructure their debt and bondholders (banks) take a haircut, the proposal on the table is for working Americans to help fund the addict’s next hit.

Would Congress Approve?  Would Taxpayers Revolt?

In order to increase the IMF funding, the US would have to take the issue before Congress to be authorized.  With a lame duck Congress through year-end and many voting members saying vacating their positions, anything can happen.  Whether the American people would have another vomit-in-my-mouth moment and revolt over the sheer absurdity of this position, Congress may pull the old “Financial Collapse” card like they did with the GM bailouts (which by the way, the midwest DID NOT collapse as the administration predicted when GM finally did declare bankruptcy) and the bank bailouts.  There’s always the notion of “who knows what could have happened if we didn’t act”.  So, the argument here will surely be that if we allow Europe to collapse under the weight of their own debt, the world will be plunged into chaotic darkness.

If we simply allowed risk-takers to fail, we’d see a return of appropriate risk-taking.

Western governments have a penchant for transferring private risk-taking to public debt while allowing the private risk-takers to keep the profits afterward.  People are fed up.  It will be interesting to see who votes for this measure if and when it comes before Congress.  While the deficit panel cuts are occurring and we embark on our own path to Austerity, we’re funding EU bailouts?  I don’t think so.

Would You Support Increasing Funding to the IMF to Bail Out Larger EU Members?

{ 1 comment… read it below or add one }

MoneyEnergy December 2, 2010 at 1:28 am

Well, a lot of Americans seem to proudly accept/brag about that role when it comes to defense (the idea that if the U.S. wasn’t the world’s policeman, then “no one could/would be able to do it”), so why not with $$ too?”:) In other words, if you’re trying to be the world empire, this would seem to be part of the price of appearances. Then of course, this isn’t even getting into the weird political status of the IMF itself.


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