By Bill Wilson — Barack Obama wants to double the U.S. quota subscription in the International Monetary Fund (IMF) to $130 billion from its current $65 billion level. This is the foreign aid organization that has been busy bailing out Greece, Portugal, and Ireland with $86.6 billion.
U.S. taxpayers have been responsible for about 20 percent of those bailouts, or approximately $17 billion so far, even as the Eurozone continues to crumble and the debt crisis spreads to Italy and Spain.
Obama’s call to double down on this insanity comes after former Treasury Secretary Timothy Geithner had sworn under oath to the House Financial Services Committee in 2012 that “we have no intention to seek additional U.S. resources for the IMF.”
Yeah, right. The IMF, with U.S. support, in 2010 had voted to double the current quota subscriptions to the IMF. Passage required 85 percent of the IMF’s executive board to approve any increase of quotas, and the U.S. has 16.75 percent of the vote, giving the U.S. an effective veto over any change.
The vote had a 95.32 percent majority. Such a vote would have been impossible without U.S. support. Geithner lied. And now it’s undeniable.
To wit, as reported by the Washington Post, on March 5 a Treasury spokesperson admitted, “The United States is committed to implementing the 2010 quota and governance reform. We are actively working with Congress to get quota legislation completed as soon as possible.”
The increased quota would replace part of the nation’s current $100 billion line of credit to the IMF created in 2009 by the Pelosi-Reid Congress, keeping the nation’s total stake in the IMF at $165 billion.
The difference is that whereas the credit line can be tapped when needed — so far about $12.9 billion has been used of the $100 billion of so-called New Arrangements to Borrow — the quota moneys are given to the IMF up front and are irredeemable.
That means, should Greece or the other European basket cases default on loans from the quota, we’ll never get repaid. Whereas, if they default on the New Arrangements to Borrow, then the IMF will be on the hook to pay us back. That means the most recent push could be to defend the agency against insolvency should the worst happen.
All this, while Obama claims that an $85 billion reduction of budget authority in the sequester over several years is somehow the end of the world. Yet, he seems to think taxpayers will have no problem pouring another $65 billion down the drain to continue bailing out failed socialist states and the banks that enable them.
Meanwhile, even with the new quotas, the IMF would not have enough to prop up the real problems in Europe: Italy and Spain.
IMF managing director Christine Lagarde in a speech in Berlin in Jan. 2012 warned, “we need a larger firewall. Without it, countries like Italy and Spain, that are fundamentally able to repay their debts, could potentially be forced into a solvency crisis by abnormal financing costs.”
But she was not referring to the IMF. There she was arguing for the European Stability Mechanism and European Central Bank efforts to be expanded to prop up Italy and Spain.
Of course, that is not stopping more than 130 academics and government officials from claiming in a letter to House Speaker John Boehner that expanding the IMF quotas will somehow address “uncertainty in Europe.”
Not exactly. Even if the quota increases are approved all over the world, the IMF’s total capacity is only $1.36 trillion. The combined debts of Italy and Spain alone are €2.7 trillion, or $3.3 trillion.
The IMF could not bail them out if it wanted to.
Even the European Central Bank only holds €142.7 billion, or $185 billion of Italian and Spanish bonds, according to its most recent release of its bond-buying program. The European Stability Mechanism only has a €800 billion capacity, or $1.04 trillion, to prop up government debt.
If it comes to a full-on bailout for Italy and Spain, there will simply not be resources — not in Europe, the IMF, or elsewhere — to do it.
Which may not be the point. As the leader of the radical Five Star Movement in Italy, Beppe Grillo, whose party came in third place in the recent elections there, has declared, “Italy is de facto outside the euro already,” he told the Handelsblatt newspaper. “The northern European states will back us only until they have recouped the investments of their banks in Italy’s sovereign bonds. Then they will drop us like a hot potato.”
Which makes sense. Is that what U.S. taxpayers want to spend their money on? Bailing out a small group of European bankers?
All of which advises Congress not to throw good money after bad. The Eurozone is a failure, and its collapse may only be a matter of time. If it comes to that, Europe will be coming back to the U.S. yet again, only this time not through the IMF, to prop up the entire continent.
Enough is enough.
Instead, the House of Representatives should pass legislation by House Republican Conference Chair Rep. Cathy McMorris Rodgers that would rescind the $100 billion line of credit to the IMF and reduce our quota subscription.
The euro cannot be saved. It’s time for taxpayers to get out while the getting’s good.
Bill Wilson is the President of Americans for Limited Government. You can follow Bill on Twitter at @BillWilsonALG.
