Five reasons not to support the bailout of Greece

Many other nations in the EU are in frighteningly similar circumstances with their sclerotic labour markets and bloated public finances. The Mediterranean contagion is already underway, with Portugal, Italy, and Spain in its sights. Credit markets lulled to sleep for years by soothing official statements are now wide awake and are having none of it, becoming increasingly intolerant of any country with suspect finances.

Worse, sensing serious exposed weaknesses, speculative wolves are gathering for the kill, driving down the Euro and driving up borrowing costs of the weak. Putting out the fires in Greece cannot stop the contagion when there is fuel to burn elsewhere.

Reason #5: US taxpayers should not prop up profligate European spending

Whatever decisions are made in Berlin, Paris, and Brussels, they should not be underwritten by Washington. Yet that apparently is what the Obama Administration intends.

As noted above, the IMF has committed funds as part of the Greek bailout. While terribly embarrassing to Europe, this plus up is an insult to the American taxpayer. The IMF, of course, is tapping funds provided by its own member governments to participate in the bailout. As it happens, the Obama Administration convinced Congress to give the IMF an extra US$100 billion in play money last year.

It was bad enough when the federal government bailed out AIG, and then Fannie Mae and Freddie Mac, and then many of the mega banks, and then GM and Chrysler. At least these firms had the modest merit of being US companies employing US workers. Even if US government finances were in pristine shape, US taxpayer dollars should not be used to bail out a perennially dysfunctional state. But as spending-driven trillion dollar budget deficits and a presidential debt commission starkly evidence, the US is seriously risking its own Greek-style sovereign debt crisis. Fortunately, the US does not need an IMF bailout; it needs only a President willing to acknowledge that he has led the country on a Grecian spending binge it cannot afford.

Closing time at Club Med

No sooner had news of Greece’s bailout been announced that rumours began that Spain may be seeking up to €280 billion in aid. Spotting an electoral opportunity, the leader of Germany’s main opposition party, Frank-Walter Steinmeier, has so far refused to pledge parliamentary support for the bailout package. He is correct that this is unlikely to be the last transfer of taxpayers’ money from Germany to Club Med.

It is also extremely unlikely that Greece has the political capacity to take forward the reforms to which it has committed in exchange for the rescue package. The sooner the Eurozone faces up to the financial costs of the single European currency, the better.