Conservatives say they will try to block the International Monetary Fund from bailing out Italy and Spain, which they say could leave U.S. taxpayers with a huge bill.
Republicans on both sides of the Capitol complain that the Obama administration has refused to share details of what Treasury Secretary Timothy Geithner is discussing with European leaders amid reports the IMF could intervene.
Sen. Tom Coburn (R-Okla.) says he is planning legislation directing the U.S. government to veto an expanded role for the fund.
Senate Republican Steering Committee Chairman Jim DeMint (R-S.C.) and Rep. Cathy McMorris Rodgers (Wash.), a member of the House Republican leadership, also have legislation to curb the proposed intervention.
“I’m adamantly against the IMF being involved in this,” Coburn said.
“We’re throwing good money after bad down a hole that I think is not a solvable problem,” he said.
“Europe is going to default eventually, so why would you socialize their profligate spending,” he added.
Coburn estimates the U.S. could be liable for as much as $176 billion if the IMF shores up Italy and Spain and the European Union collapses.
President Obama this week said the U.S. “stands ready to do our part” to help resolve the crisis, and Geithner in October said using U.S. tax dollars through the IMF to shore up Europe’s efforts was appropriate.
DeMint offered an amendment to the defense authorization bill instructing the U.S. executive director of the IMF to use the voice and vote of the United States to oppose funding of the European Financial Stability Facility, the bailout fund that would be used to stabilize countries at risk of default.
“We need some transparency about what’s really going on,” said McMorris Rodgers. “It’s hard to get information. We’re talking about U.S. taxpayer dollars being involved in the European bailout. The administration needs to be honest with the Congress. I believe Congress needs to be involved in making this decision.”
But Coburn and other Republicans are skeptical their effort will be successful. They expect Senate Majority Leader Harry Reid (D-Nev.) to prevent the Senate from voting on legislation to block U.S. funds from being used in an IMF bailout.
Even if it passes Congress, Coburn says President Obama would likely veto the legislation.
IMF Managing Director Christine Lagarde announced Thursday that Group of 20 nations are prepared to fund a massive IMF intervention.
“If circumstances require, the G-20 will commit the resources that are necessary for the IMF to play its systemic role,” she said, according to Bloomberg. “That gives you a range that is almost without a cap, without a limitation.”
An IMF spokesman said Wednesday the fund is not in discussions with Italy about a bailout.
An IMF bailout of Italy would have to be limited unless rich nations boost its resources. The IMF has about 390 billion euros, but could only spend about 150 billion on Italy because of other commitments. Bailing out Italy alone could cost 600 billion euros, according to Desmond Lachman, an American Enterprise Institute scholar and former IMF deputy director.
Republican lawmakers were alarmed by business news reports earlier this week that the IMF was ready to expand its role in Europe. Traditionally the fund has worked with relatively small, emerging economies. Switching its financial firepower to established economies the size of Italy and Spain would mark a significant change of mission.
Senate Republican Policy Committee Chairman John Thune (S.D.) and other lawmakers said they would join an effort to block an IMF bailout of those countries.
“I’m really leery and skeptical about having the IMF be the point on that because that exposes the U.S. because we’re such a big funder of the IMF,” said Thune.
“I don’t know why the European Central Bank wouldn’t do that directly as opposed to going through the IMF except to get other nations drawn in,” Thune added. “It’s not our best interests or Europe’s best interests to have the United States bailing out countries that need to deal with their own issues.”
Sen. Orrin Hatch (Utah), the senior Republican on the Senate Finance Committee, said “he’s very concerned” from what he’s heard in recent days and would support the efforts of Coburn and DeMint.
“There’s a lot of concern,” he said. “The reason we’re in the situation we’re in [is] because of excessive debt in the industrialized world.”
Domenico Lombardi, a senior fellow at the Brookings Institution and a former board member of the IMF, said the advantage of bailing out Italy or Spain through the IMF instead of the European Central Bank is that doing so would allow European leaders to condition aid on the implementation of fiscal reforms.
Lombardi said the IMF has the authority to attach strings to a possible bailout and monitor the actions of the recipient countries, which the central bank does not.
“The EU system does not have ability to impose conditionality, but the IMF does,” he said.
Lombardi said the Republican criticism has some validity because if the IMF loaned massive amounts to Italy and Spain and failed to prevent a default, the IMF, not the European Central Bank, would be liable.
The U.S. is the biggest contributor to the IMF, kicking in about 17 percent of its budget. A European default could put U.S. taxpayers on the hook for 17 percent of the IMF’s liabilities.
European leaders set a $1.3 trillion goal for an expanded bailout fund. If it failed to recoup its loans, U.S. taxpayers would face a liability of more than $200 billion.