Faced with their own flagging economy, US House and Senate Republicans are pressing ahead with legislation to withdraw billions of dollars in borrowing authority in the International Monetary Fund to prevent money going for eurozone bailouts.
“We support that legislation because we don’t think it’s appropriate for US taxpayers, especially at a time where we are in a large deficit position ourselves, to be financing bailout operations for Europe,” said Phil Kerpen, vice president for policy at Americans for Prosperity, one of nearly two dozen pressure groups urging the US Congress to restrict support for Europe through the IMF.
US Representative Cathy McMorris Rodgers is the sponsor of a bill backed by Kerpen’s group. The Washington state lawmaker has argued in national television interviews and in a letter sent to congressional budget negotiators that the US can’t afford to rescue the EU.
“As the European financial crisis continues to unfold, the IMF continues to spend hundreds of billions of dollars bailing out members of the European Union,” Rodgers said in a letter to fellow representatives on 9 December, the day EU leaders signed off on their second eurozone rescue pact in seven weeks.
“What’s more disturbing is that over the last several days, the [Obama] administration has made it clear its intent to continue supporting these bailout efforts,” she said, adding that the US “cannot continue this wasteful practice.”
As part of their deal to combat debt and save the euro, EU leaders committed to bolster the IMF’s lending authority with loans of up to €200 billion that would be available to struggling European governments. Both the IMF and White House welcomed the move but the details about commitments from both eurozone and non-eurozone members remain unclear.
US role matters
The United States is the biggest contributor to the IMF. The move by the Republicans is unusual in that it is aimed at a close ally and trading partner and one that – like the US – has weathered more than three years of financial turbulence and mounting government debt.
Ignoring last week’s EU summit deal, ratings agencies were prepared to downgrade 15 eurozone countries including such economic stalwarts as Germany and the Netherlands. Meanwhile, rates on Italian bonds soared to a euro-era record yesterday (14 December).
The US itself lost its top AAA rating in August when Standard & Poor’s cut the American debt rating to AA+. A downgrade for European countries would drive up the cost of debt at a time of growing pressure for austerity.
As the EU leaders summit in Brussels closed on 9 December, Republican US Senator Jim DeMint renewed efforts in the upper house of Congress for approval of a bill that would restrict the IMF from using $108 billion (€81.8 billion) in bailout authority given to the IMF in 2009.
DeMint’s legislation - a companion to the Rodgers' bill - would prevent US involvement in bailouts for EU countries that fail to meet the 60% debt limit set by the EU’s Stability and Growth Pact.
A spokesman for Rodgers says momentum is growing. Her bill has 83 co-sponsors, up from 22 before the EU summit, and DeMint’s office says 25 other Republican senators are supporting his legislation.
With Congress racing to wrap up business before their Christmas break, it is unlikely either the DeMint or Rodgers bill would be approved this year. The measures would have to be re-introduced when the House and Senate convene in January.
IMF chief backs EU measures
An IMF spokesman did not respond to EurActiv’s request for reaction to the congressional efforts. But IMF Managing Director Christine Lagarde has praised the steps taken by EU leaders last week and was in Brussels for their summit. She also indicated support for helping member countries out of financial difficulties.
Lagarde, the former French finance minister who spent 25 years as a lawyer in the United States, is highly respected in both Republican and Democratic political circles. She was due to meet Rodgers yesterday (14 December) in Washington.
Although Republicans in the House and Senate have been trying for a year to block US money going to help European economies, the EU summit provided a renewed push for the legislation.
Shortly after President Barack Obama took power in 2009, allied House and Senate Democrats approved the $108 billion rise in IMF contributions over strong Republican objections.
“Most Americans see this as good money being thrown after bad, and that it will not actually effect improvement in the fiscal situation in Europe,” Americans for Prosperity’s Kerpen told EurActiv.
“The point is that the American taxpayer should not be forced to incur public debt – because we’re in a deficit position as well – to send money off to Europe. The fact that the money is not likely to be of a material amount in the context of the overall bailout just underscores the futility of wasting that money in that kind of fashion.”