Wednesday, April 20, 2011

U.S. Taxpayers on the Hook for Portugal Bailout

Recently, Portugal officially requested a $116 billion bailout from the European Union and the International Monetary Fund. This makes Portugal the third European nation to seek such a bailout in the past year (Greece got $157 billion; Ireland $122 billion). What most people don’t realize is that the U.S. is the largest contributor to the IMF. Therefore, U.S. taxpayers are paying for Portugal’s bailout which – like the earlier bailouts of Greece and Ireland – was caused by too much government spending and borrowing.
Last year, here at I warned how the Obama Administration was making a Greek bailout more likely by agreeing in advance that U.S. taxpayers would help foot the bill. Later, the IMF set up a $356 billion bailout fund for European governments with the consent of the Obama Administration– even though the fund will likely cost U.S. taxpayers between $50-100 billion and possibly more – all without a Congressional vote or consultation.
On April 29, 2010, Rep. Mike Pence (R-IN) and I wrote a letter to Treasury Secretary Tim Geithner warning of the dangers of U.S. participation in a Greek bailout. “The Obama Administration needs to understand that bailing out Greece will not solve Greece’s problems,” I said at the time. “It will only create a moral hazard that gets America more involved in the gathering storm of European bailouts.” That storm has since consumed Ireland and Portugal and others may be on the way.

At a time when the U.S. government is borrowing $5 billion every day on top of a $14 trillion national debt, does it really make sense for us to borrow even more money (much of it from China) to help bailout Europe? After all, the European crisis was caused by too much spending and borrowing, and that crisis will not be solved by more spending and borrowing.
While the IMF refuses to provide a reliable number, we estimate that America’s contribution to a Portuguese bailout is equal to writing a check worth $600 for every man and woman in Portugal. This largesse makes it more likely that larger counties – particularly, Spain and Italy – will be standing in line for U.S. tax dollars tomorrow. That is unacceptable. We cannot take the “too big to fail” philosophy to a global level. The only thing “too big to fail’ is America itself.

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