How the U.S. Can Help Europe: Just Say No
The greatest threat to our economy is not the debt crisis across the pond, but the one right here on American soil..
By JIM DEMINT
If the United States wants to help Europe find a way out of its current debt crisis, we must be a strong, world economic leader, not merely the lender of last resort.
American taxpayers sent $40 billion to Greece last year, through the International Monetary Fund, to stave off an economic collapse. But the bailout did not prevent Greece's day of fiscal reckoning. It only delayed it. Austerity measures are still needed throughout Europe's socialized economy and the debt contagion has not been stopped. Financial chaos has spread from Greece to Ireland, Portugal, Italy and Spain, and it now threatens the very future of the 17-member euro zone.
Undeterred, President Obama last month told the press after breaking from a closed-door meeting with European leaders, "the United States stands ready to do our part to help them resolve this issue." He would do better to focus his attention stateside. The most dangerous threat to the U.S. economy is not across the pond. It's in the swampland of Washington, D.C.
The very problems that have roiled Europe's economy are coming to a slow boil in the U.S. Just as European leaders must limit deficit spending, reform unfunded entitlement programs, and resolve the underlying systemic problems in their financial systems, so must the politicians in Washington. Yet the Obama administration is burning taxpayers at each end of the dollar by bailing out failed socialist policies abroad and, at the same time, forcing them into place here at home.
Although every country's finances are unique, the U.S. is unquestionably in the danger zone.
Greece's economy reached its tipping point and was bailed out when government debt topped 137% of its gross domestic product. Despite all the measures that have been taken to aid it, Greece's debt-to-GDP-ratio is even higher now, at 160%. Ireland was bailed out at 74% of GDP and is now at 80%. Portugal was bailed out at 94% of GDP and is now expected to top 100%. The bailouts have arguably made the European debt crisis worse, not better.
Total U.S. debt, including entitlement liabilities, reached 100% of GDP when Congress increased the debt ceiling in August. Our $15 trillion debt now rivals the size of the entire U.S. economy.
When he first took office, President Obama promised to cut the federal deficit in half by 2013. But instead he's increased it by more than $4 trillion. Indeed, under his direction, the U.S. government spent about $1 trillion on a Keynesian-style stimulus that failed to create the jobs promised, will spend trillions more creating a European-style health-care entitlement with ObamaCare, and has more Americans on welfare than ever before.
With President Obama in the White House, liberals have succeeded in their longstanding quest to make America more like Europe. Problem is, their idealized version of Europe's collectivist government is now in shambles. If the U.S. continues to mimic our European allies we'll fall to pieces, too.
It is under these circumstances that high-level members of the Obama administration, including the president himself, are negotiating with international leaders over how best to solve the European debt crisis. This week, Treasury Secretary Tim Geithner met central bankers and European leaders days ahead of this Friday's emergency EU summit in Brussels, where a last-ditch rescue effort is expected to be announced. France and Germany are pushing for EU rule changes to enforce stricter budget discipline on member nations in exchange for further bailouts. The International Monetary Fund, which the U.S. funds at a higher percentage than any other nation, is expected to aid the rescue. The only question is how big a role the IMF and U.S. taxpayers will play.
This year the U.S. sent about $67 billion to the IMF, which represents 17.7% of the IMF's yearly budget—nearly three times more than any other nation. On top of that, taxpayers provided an additional $108 billion credit line to the IMF in 2009.
In 2010, the IMF sent nearly $40 billion in assistance to Greece, which did nothing to prevent the country's economic collapse in 2011. On Monday, the IMF approved another $2.95 billion worth of bailout funds for the struggling country.
If this is what President Obama meant when he said the "United States stands ready to do our part," it's time for him to part ways from his European friends seeking the same kind of assistance that has been provided to Greece.
American policy makers must send an unmistakable signal that the era of bailouts is over once and for all.
Earlier this year, I offered an amendment to repeal the IMF's authority to use the additional $108 billion credit line to provide any more bailouts. It was overwhelmingly rejected by the Democrat-controlled Senate. Forty-four senators voted for it; only one was a Democrat.
I will soon give my colleagues another chance by forcing a vote to stop Mr. Geithner from supporting any more taxpayer-funded bailouts of the European economy, as well as nullifying previously expanded IMF bailout authority.
Members of the Obama administration must focus all of their efforts on strengthening the U.S. economy and balancing our budget, rather than on continuing to borrow from China to pay for Europe's out-of-control debts.
President Obama and Mr. Geithner have lectured European leaders on the need for them to take decisive action to stabilize their economies. They should practice what they preach and set a positive example for the world to follow.
Lending isn't leading. Balancing the budget would be.
Mr. DeMint, a Republican, is a senator from South Carolina.
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