There’s a rather simple solution to Europe’s fiscal crisis, but politicians will never do the right thing unless every other option is exhausted.
That’s why American taxpayers should not be involved in any sort of European bailout, either directly or indirectly.
This cartoon captures my sentiment.
At the risk of being picky, however, I would replace “Fed” with “USA/IMF” or something like that.
As I explained a few days ago, the Federal Reserve’s recent announcement that it will provide dollar liquidity to Europe is not necessarily objectionable. After all, the Europeans have to pay us back if they borrow dollars, with interest, at current exchange rates.
Yes, I worry European politicians may interpret the Fed’s actions as a signal that they can defer long-overdue reforms, and I also worry that it might be a precursor for easy-money policies in the future.
But the real threat to American taxpayers is that the International Monetary Fund may provide more bailouts to Europe.
I keep explaining that the only solution is for Europe’s welfare states to copy the Baltic nations and actually cut spending, but that will never happen if European politicians think that they can get an IMF handout (and thus shift some of their bad fiscal policy onto the backs of American taxpayers).
