By Ian Swanson - 05/08/10 10:00 AM EDT
The Obama administration’s support for an aid package to Greece is coming under fire from Republican critics.
The International Monetary Fund is expected to approve a $40
billion loan to Greece on Sunday, which Republicans say will allow U.S.
taxpayer dollars to be funneled for the bailout of a government that couldn’t
pay its bills.
House Republican Conference Vice Chairwoman Cathy McMorris Rodgers (R-Wash.) warns the effort could lead to future bailouts of larger struggling countries such as Portugal and Spain.
“It seems to me that this is an example of Greece and other countries not making good management decisions,” she said in an interview.
McMorris Rodgers and House GOP Conference Chairman Mike Pence (R-Ind.) made the same argument in a letter this week to Treasury Sec. Tim Geithner and to Vice President Joe Biden, who was to meet with Spain’s prime minister on Saturday.
McMorris Rodgers said Greece should tighten its own belt. If other European countries want to help a fellow European Union member, it’s one thing, she said. But U.S. taxpayers should not be asked to contribute through the IMF.
She noted that the U.S. isn’t asking Europe to help bail out indebted U.S. states such as California.
The GOP is also using the Greek crisis to highlight the U.S. budget deficit and public debt, which they say Democrats have allowed to run out of control.
While the U.S. is the largest funder of the IMF, the $40 million in funding from the institution for the Greek crisis would not fall entirely on U.S. taxpayers.
In addition, Jacob Kirkegaard, a fellow at the Peterson Institute of International Economics, said the IMF is highly unlikely to not be repaid.
Kirkegaard doubts that the initial package of loans from the IMF and European countries will solve the Greek crisis. He believes Greece must accept a significant restructuring of its debt, something that could lead to a write-down for debt holders that would hurt a number of banks, particularly in Germany.
At the same time, he said historically the IMF has always been repaid. It would have the status of a senior creditor, meaning Greece would have to pay back the IMF before others it is indebted to, Kirkegaard said.
There are “no grounds to oppose this on the grounds that it will put U.S. taxpayers at risk,” he argued.
Markets in the U.S. have plunged this week, in part because of fears that the problems in Greece will spread throughout Europe and to the U.S. economy.
McMorris Rodgers said this shows markets lack confidence in the EU-IMF package and believes larger bailouts will follow.
Kirkegaard said he thinks the IMF should be involved in aiding Greece. He also said the continuing crisis could have a number of negative effects on the U.S. economy.
The Euro has dropped significantly against the dollar, which will make EU exports more competitive in third markets against U.S. competition. It will also make EU exports to the U.S. cheaper and U.S. exports to the EU more expensive.
All of this will complicate Obama’s objective of doubling U.S. exports in the next decade, if the trends on currency continue.
There’s also a danger of credit markets tightening because of the crisis in Europe, Kirkegaard said.