NCPA - National Center for Policy Analysis

Why European Loans Could Hurt U.S. Taxpayers

January 4, 2012

There is a major disconnect between what the Obama administration says and what it does about bailing out countries in the European periphery.  For while the administration keeps insisting that Europe has the financial wherewithal to rescue those European countries in distress, it has allowed the International Monetary Fund (IMF) to bail out Greece, Ireland and Portugal on an unprecedented scale.  And it has done so in a manner that puts U.S. taxpayer on the hook in a major way, says Desmond Lachman, a resident fellow at the American Enterprise Institute.

  • While the IMF never lent a country more than 12 times its IMF quota contribution during the Asian and Latin American crises of the late 1990s, its recent loan commitments to Greece, Ireland and Portugal have been more on the order of 35 to 40 times those countries' IMF quotas.
  • In U.S. dollar terms, the IMF's lending commitments made to those three European countries now total around $100 billion.
  • Considering that the United States has a 17.75 percent share in the IMF, these lending commitments put the U.S. taxpayer at risk for an almost $20 billion loss should those countries be unable to repay the IMF.

The egregiousness of the situation is multiplied when it is taken into account that this style of lending will likely continue with emergency relief to Spain and Italy.

  • IMF lending commitments to Italy and Spain could be of the order of $750 billion and $450 billion, respectively.
  • U.S. taxpayers' exposure to this IMF lending could be on the order of $220 billion.

Not only is the spending on an unprecedented scale, but real discussion has emerged of a euro collapse, which would make repayment unlikely.

Source: Desmond Lachman, "Why European Loans Could Hurt U.S. Taxpayers,", December 30, 2011.

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