07.28.2011 0

Revulsion against bailouts on both sides of the Atlantic

By Howard Rich – Last week a gleeful American press corps celebrated the most recent “European” bailout of Greece. In fact, one major wire service blissfully concluded that this $230 billion infusion of cash would “end the region’s debt crisis.” Of course such unfounded optimism is laughable — as anyone following the sovereign debt debacle in Europe is well aware.

Decades of unsustainable government borrowing aimed at propping up unnecessary bureaucracies and exorbitant entitlement spending now has the entire European continent teetering on the verge of an unprecedented fiscal collapse — even after hundreds of billions of dollars have been poured into recent “rescue” packages.

Sound familiar? It should. And so should the additional debt and contracting economic activity produced by the recent interventionism.

In a nod to this reality, Moody’s recently acknowledged that the latest Greek bailout would actually increase the likelihood of the continent’s sovereign debt crisis spreading to Spain and Italy, a pair of nations which are also operating with “high debt burdens or large budget deficits.”

Yet rather than heed this cautionary tale as it relates to our own debt crisis, American leaders are actually subsidizing the Greek bailout via $108 billion in International Monetary Fund payments approved at Barack Obama’s request.

And worst of all — the intervention is doomed to fail.

“This is not a solution to the Greek problem, even if Greece successfully implements all the austerity that it’s promising,” one analyst noted last May after Europe’s initial bailout of Greece was approved.

But did Greece at least follow through on the “austerity” measures it promised in exchange for nearly $150 billion in aid? Of course not. In fact even as the country prepares to reap additional billions from its neighboring nations (and American taxpayers), Greek leaders are still refusing to sell the government’s stake in casinos, resorts, hotels and other non-core state-supported enterprises.

“Despite Greece’s promises, government spending is up over last year’s already bloated levels, the deficit is bigger than ever, and it has utterly failed to meet the promised sell-off of some government assets,” writes economist John R. Lott, Jr. “Not a single public bureaucrat has been laid off so far .”

So much for “austerity.”

Yet while Greece continues to engage in speculative command economic planning, those financial institutions holding Greek bonds are being forced to take a 21 percent haircut — a scene which is likely to be repeated in Spain and Italy in the coming months.

The fact that Greece is continuing to receive largesse from other European nations (and from the United States) in spite of its refusal to rein in spending and liquidate non-core assets sets a terrible precedent for future fiscal policy in the Eurozone. It is also prompting unusually stern rebukes of European leaders like Germany’s Angela Merkel — who despite clear evidence of the failure of interventionist policy continues to appease Europe’s Keynesian collectivists.

”This weakens the foundations of a monetary union where each is responsible for its own budget,” Jens Weidmann, head of Germany’s central bank, said of the latest Greek bailout. “In the future, it is going to be even harder to uphold incentives for solid fiscal policies.”

Not only that, Weidmann added that the agreement exposed Germany to “sizeable risks” financially.

Meanwhile, a finance minister in Merkel’s coalition government took those criticisms a step further, arguing that a recent bailout-related summit amounted to “the castration of Germany’s Parliament.”

In America, U.S. Sen. Jim DeMint has sponsored legislation that would restrict the use of American IMF funds.

“American taxpayers simply cannot afford to bail out Europe,” DeMint said.

On both sides of the Atlantic, it is clear that a nucleus of fiscally conservative leaders is emerging. And despite the barbs of government elites and intense pressure from a shamelessly co-opted legacy media, these leaders are bravely promoting common sense reforms over the failed approaches of the past. There are still not enough of them, unfortunately — and it may be too late for them to stop the coming contagion — but for the first time in years, taxpayers around the globe are at least having their interests represented.

The author is chairman of Americans for Limited Government.

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