As Greece teeters on the brink of defaulting on its government debt and Italy appears a strong contender to be the fourth European country in need of a financial bailout, the head of one of the key organizations in the attempt to financially rescue Europe signaled it will very likely need to increase its bailout fund—something that the U.S. has contributed more than $100 billion to already.
In a little-noticed, but very significant, development at the fall meeting of the International Monetary Fund (IMF) this weekend, IMF Managing Director Christine LaGarde distributed a document to the organization’s steering committee warning that it will need more than the $384 billion now in its financial war chest to deal with the uncertain financial situation in Europe.
“The fund’s credibility, and hence effectiveness, rests on its perceived capacity to cope with worst-case scenarios,” wrote LaGarde, who became the first-ever female IMF managing director following the sensational scandal that led to the resignation of former IMF chief Dominique Strauss-Kahn earlier this year. “Our lending capacity of almost $400 billion looks comfortable today, but pales in comparison with the potential financing needs of vulnerable countries and crisis bystanders [emphasis added].”
One American lawmaker who did catch LaGarde’s strong hint that the IMF may soon have its hand out again was Rep. Cathy McMorris Rodgers (R.-Wash.), the first member of Congress to publicly come out against U.S. involvement in any European bailout back in March of 2010.
“We cannot take the ‘too big to fail’ philosophy to a global level,” McMorris Rodgers told reporters yesterday. “The only thing too big to fail is America itself.”
She recalled how when Democrats controlled Congress in ’09 and President Obama called our financial support for the IMF “woefully inadequate,” the House and Senate narrowly voted for an additional $108 billion to the global titan. A year later, Greece became the first country to need a bailout from the IMF and was soon followed by Portugal and Ireland. Coupled with loans from the European Union, the price tags on the bailout packages came to $157 billion for Greece, $122 billion for Ireland and $116 billion for Portugal.
In a related development, the London Telegraph reported, “European officials revealed they were working on a radical plan to boost their own bailout fund, the European Financial Stability Facility, from 440 billion euros to around 3 trillion euros.
“The European Union was set up to be an economic competitor to the United States, and therefore, any bailout funds should come from the EU, not the U.S.,” declared McMorris Rodgers, “The global debt crisis was caused by too much spending and borrowing, and that crisis will not be solved by more spending and borrowing.
“At a time when the federal government is borrowing $5 billion every day on top of a $14 trillion national debt, we should not be funneling billions of dollars through the IMF to bail out Greece, Portugal, Ireland and other wealthy European countries.”
Earlier this year, McMorris Rodgers introduced HR 2313, which would secure the return of any unused U.S. tax dollars from that $108 billion IMF package and apply it to the deficit here. So far, the measure has 22 co-sponsors, and a similar proposal in the Senate (SR 1276) introduced by Sen. Jim DeMint (R-S.C.) has seven co-sponsors.
It seems a fairly good bet to say that the growing nervousness about another Greek default or Italy going under will enhance support for these two measures before Congress.