US Should Stay Out of Greek Bailout
By Randall Holcombe • Wednesday June 8, 2011 1:55 PM PDT • 4 Comments
In a recent meeting with German Chancellor Angela Merkel, President Obama “...pledged to cooperate fully in working through these issues, both on a bilateral basis but also through international and financial institutions like the IMF.” The US should stay out of Greece’s financial problems, for several reasons.
First, the US is running budget deficits along the same magnitude as Greece. True, the US debt problem is not as big right now, but that’s because Greece got a head start. We’re working on catching up and putting ourselves in Greece’s situation. (President Obama has only been in office two and a half years.) We should be working on solving our own financial problems, not worrying about the financial issues of other countries.
Second, it is clear that any short-term solution to the Greek problem is going to involve placing restrictions on Greece’s fiscal policy. We are already the world’s bully, and we should avoid any appearance of bullying Greece in this case. It makes no sense to offer aid without conditions and restrictions, and it would be bad policy for the US to try to impose restrictions on Greece. The EU is in a better position to give aid with conditions, because Greece is a part of the EU.
Third, in joining the EU, Greece agreed to limits on their deficits and their debt, and they violated that agreement. (Other countries did too.) Now, it appears that the EU and the US are saying, “You made an agreement and you violated it, so we are going to reward you by bailing you out.” Countries that violate agreements like this should deal with the consequences themselves. To do otherwise is to remove the force behind any other international agreements, past or future. What does an agreement mean if those who fail to keep it reap rewards as a result?
Fourth, any offer of aid to Greece, from the US, the EU, or anyone else, will not solve the Greek fiscal crisis, it will only prolong it. If Greece had no other way out but to default on the obligations they cannot meet, some parties would bear short-term costs, but the crisis would then pass. As it is, talk about restructuring the debt, extending the payment schedule, and so forth, just means the crisis will linger on longer.
President Obama said the US is ready to help Greece through its fiscal problems, but he didn’t say how the US would help. In this case, I am hoping the president is all talk and no action.