Like a bad soap opera, the European debt crisis never wants to end, and it’s likely to enter a worse phase when Greece holds its next election on June 17. With one week to go, the outcome seems preordained: the major Greek parties want to end the bailouts and the conditions that come with them.
That’s why the next few weeks are so crucial. Instead of waiting on the inevitable, the European Union, the International Monetary Fund, and the Obama Administration – which provided a $100 billion line of credit to the IMF, which is being used for the bailouts – should rethink their “Bailout Universe” strategy. That strategy has failed, and a new one is needed.
The failure is easy to see: while Greece, Ireland, and Portugal have secured over $500 billion in bailout money over the last two years, their debt burden continues to grow. Meanwhile, Spain and Italy face a similar crisis because of too much spending and borrowing. Nearly one-third of the bailout money comes from the IMF, and the largest contributor to the IMF is the U.S. The Obama Administration has quietly endorsed these bailouts because they believe that, while the bailouts are costly, by enforcing “austerity” on Europe, they will also solve the problem.
Now is the time to question that assumption. For starters, Europe is hardly in an “age of austerity.” Last year, 23 of the 27 EU nations increased spending. One of the few that did make cuts, Greece, cut only six percent of its budget – hardly draconian. Meanwhile, Greece continues to run a budget deficit equal to ten percent of its economy. The national debt in France, Spain and Italy continues to increase. This is “austerity”?
And what of “austerity’s” future? In the recent Greek election, 68 percent of the vote went to anti-bailout parties. In France, Socialist Francois Hollande was elected President promising to lower the retirement age from 62 to 60. German Chancellor Angela Merkel recently said she was open to giving Greece an injection of “stimulus.” At the recent G-8 summit, President Obama urged European leaders to enact a new round of “stimulus” for the whole continent.
Clearly, Europe is going in the wrong direction, and the Administration isn’t helping. That’s why it’s so important for global leaders to start working on a Plan B, a simple plan that would have three basic concepts: stop the bailouts, end the spending binge, and balance the budget once and for all.
President Obama can do his part by reducing America’s line of credit to the IMF to pre-2009 levels, protecting almost $100 billion. I have introduced legislation, HR 2313, which would do exactly that. My bill, which has 94 cosponsors, would send a powerful message to Europe: Uncle Sam’s blank check is over. This isn’t meant to punish Europe. Rather, it’s meant to help Europe make the tough choices that are necessary for a true, sustainable recovery. That recovery can’t happen until job creators – in Europe and the U.S. – gain confidence that the world’s governments have the discipline to get spending and borrowing under control and unleash the power of free enterprise.
Those who worry that revoking the $100 billion line of credit would scare the markets should remember two things. First, it’s actually the uncertainty caused by the endless bailouts – and the fear they’ll never end because of the lack of fiscal discipline – which has caused the swings in the market and the underperformance of the world economy since the Great Recession officially ended in 2009. The crushing burden of debt – and the fear that government debt is out of control – is the main reason why this recovery has been so lackluster, in contrast to the Reagan Recovery which was led by the private sector, not government “stimulus,” and was much stronger.
Furthermore, many experts believe that $100 billion won’t make any difference anyway. It’s too small to make a real impact on the EU’s situation, but it’s definitely big enough to leave a hole in the wallets of U.S. taxpayers at a time when we’re about to face our own fiscal crisis. Consider: a bailout of Italy equal to Portugal’s bailout – about half of GDP – would need over $1 trillion. There isn’t enough money in the world for that kind of commitment. That’s why dealing with this problem now is essential. And instead of waiting by the sidelines and quietly funneling money to the EU through the IMF – as the Administration has done – the US should be working constructively with our allies to find a true, long-lasting solution.
Now is the time for action and a renewed commitment to freedom and smaller government. We cannot take the “too big to fail” philosophy to a global level. The only thing “too big to fail” is America itself.
Rep. Cathy McMorris Rodgers (R-WA) is Vice Chair of the House Republican Conference.