IMF: International Monetary Failure
As of now, money supporting Greece’s dire fiscal situation has come from two institutions, the European Union and the International Monetary Fund. Because the U.S. is a member of the IMF, some of the money going to Greece comes courtesy of U.S. taxpayers. As the Wall Street Journal reports:
“The U.S. role comes from its obligations to the IMF, which is lending an additional $39 billion as part of the Greek package. The U.S. pays roughly in proportion to its stake in the IMF, as do other countries, if the IMF’s board votes to approve the package on Sunday, as expected. The IMF is akin to a global credit union. Members kick in money. The institution’s board lends it out. Each member has a ‘quota’ – that is, a financial stake in the IMF, expressed as a percentage – and contributes accordingly. The U.S. quota is 17.09%, followed by Japan at 6.12%, Germany at 5.98% and France and Britain at 4.94% each.”
While Greece and the other EU nations currently under fiscal duress have had overspending problems for quite some time now, the New York Times points out that these were exacerbated by stimulus plans put in place to combat the recent global recession:
“A sovereign debt crisis – compounded by a recession that had cut tax receipts and prompted extra government stimulus spending all over Europe – began to gnaw at those countries most exposed and least competitive: Greece, Portugal and Spain.”
Couple that with the following, from the IMF’s World Economic Outlook in November 2008:
“There is a clear need for additional macroeconomic policy stimulus relative to what has been announced thus far, to support growth and provide a context to restore health to financial sectors.”
Isn’t it ironic that the IMF, the group now responsible for financing the bailout, was also responsible for insisting these countries undertake stimulus plans in the first place?
As the adage goes, intervention begets more intervention. Greece’s stimulus plan may or may not have been the straw that broke the camel’s back. One thing is for sure though: it would be incredibly hard now for the IMF to argue that the additional overspending did anything but bring Greece closer to the brink, given the current situation.