Like US jobs problem, solving the Eurozone crisis means tough decisions
One: The solutions to the problems in the Eurozone, not unlike the jobs problem here, are known: a large fund committed to backstopping the governments and banks holding troubled debt, and managed default by Greece.聽 Like many here, I鈥檝e criticized the bumbling policy makers of Europe, especially the central bank (the ECB) for failing to lead.
Yet, after spending some time there recently, and talking to some of the policy makers involved, I鈥檓 a slight bit more sympathetic鈥攖hough just a bit: true leadership means you sometimes have to do tough, unpopular things.
But one conversation stuck with me, wherein a German analyst, stressing how deeply unpopular the bailouts are with their electorate, told me in so many words: 鈥渨e know what we must do; but we have to do it secretly.鈥澛� Prime Minister Jean-Claude Juncker of Luxembourg put it this way: 鈥淲e all know what to do, but we don鈥檛 know how to get reelected once we have done it.鈥�
Of course, that鈥檚 a main reason you have politically insulated central banks that must play the lender of last resort role in rare moments when that鈥檚 precisely鈥m鈥he last resort.聽 But somehow, the ECB has yet to get that memo.
Two: OK, if the ECB won鈥檛 step up, what about the International Monetary fund, or IMF? 聽Howard Schneider鈥檚 been writing useful pieces about this in the WaPo, and in , he covers what I think could (unfortunately) become a big deal here in the next week or so.
The IMF provides some cover and could play an effective role in channeling loans to the troubled Eurozone economies.聽 But there鈥檚 a nascent movement among US politicians to stop them based on the false belief that 聽by doing so they鈥檇 be protecting US taxpayers from exposure to the European bailouts.
Here鈥檚 why that鈥檚 almost 100% wrong.
鈥搕he claim that the President will go to Congress to ask for more money to lend to the IMF to help Europe is certainly wrong;
鈥搕he claim that the loans expose the US to default risk is, of course, not wholly wrong鈥攖hat鈥檚 always been the case since we鈥檝e been a member of the fund.聽 But it鈥檚 extremely unlikely.
The IMF enjoys preferred creditor status鈥攖hey get paid back first鈥攁nd it has a long, solid track record of being repaid.聽 Some of these same noises were made when Argentina received large infusions from the fund, but the country paid their debts back to the IMF before they were due (though Schneider does point out that some African countries are in 鈥減rotracted arrears鈥�).
In short, in a world of interconnected financial markets and great disparities in wealth, credit, and financial intermediaries, you need an IMF.聽 We鈥檙e a member as we should be, and that implies some credit risk, albeit tiny in this case.聽 In fact, the US has never lost money on our contributions to the fund, which is pretty remarkable given that the finances of some of places they鈥檝e leant to make Greece look prudent.
European policy makers are having enough success convincing themselves not to solve their problems. 聽They don鈥檛 need any help from our politicians.
