By Bill Wilson — Today, on March 20, U.S. Treasury Secretary Timothy Geithner will be testifying the House Financial Services committee on the state of the international financial system.
This is an opportune moment for members to ask tough questions about U.S. taxpayers’ role in propping troubled sovereigns in Europe via the International Monetary Fund (IMF), especially with the Fund’s newly approved to $36.7 billion of loans to Greece. This will raise taxpayers’ stake in Greece to $13 billion, and Europe as a whole to $20.9 billion.
Particularly, in light of recent amendments 22 U.S.C. 286 et seq. in H.R. 4173, the Dodd-Frank financial legislation, the IMF’s U.S. executive director Meg Lundsager needed to have developed an evaluation for lending further resources to Greece. The law requires such an evaluation take place prior to approval, as Greece’s debt was well in excess of its GDP, and needed to show the Hellenic nation would not default on its new loans.
In addition, the law requires the Secretary to “report in writing” within 30 days of the loan’s approval to your committee “assessing the likelihood that loans made pursuant to such proposals will be repaid in full”.
This is particularly important because Greece just defaulted on about €105 billion debt ($138 billion) of its €340 billion debt ($447 billion). Of course, not even that saves the Secretary from having to provide the evaluation to Congress, because Greece’s remaining €235 billion debt ($309 billion) most certainly still exceeds its GDP, which for 2011 was €215 billion ($283 billion).
So far, it is not known whether this evaluation occurred or not. The House committee chaired by Rep. Spencer Bachus is charged with ensuring that the Secretary has complied with the law in full, a thorough evaluation was prepared prior to the loan’s approval, and that said analysis is delivered to Congress in a timely fashion.
Even the IMF has to admit that the risks of the new Greek loan program are “exceptionally high” and conceded further restructuring (i.e. default) by Athens may be necessary to get its fiscal house back in order. Did the Obama Administration support such a package? That’s a question members should ask Geithner.
But in addition to holding the Secretary accountable for upholding provisions of Dodd-Frank, it is vital that both the House Financial Services and Senate Foreign Relations Committees move legislation to reduce the nation’s role in the IMF.
Both Rep. Cathy McMorris Rodgers and Sen. Jim DeMint have taken the lead on this critical issue of U.S. taxpayer bailing out European banks, offering bills that would rescind the additional $108 billion bailout authority to the IMF the Pelosi-Reid Congress approved in 2009.
With taxpayers already on the hook for more than $20 billion and counting in Europe, there is not a moment to lose. Taxpayers should not be propping up bankrupt socialist states.
Bill Wilson is the President of Americans for Limited Government. You can follow Bill Wilson on Twitter at @BillWilsonALG.
