bail-out fatigue

The U.S. Senate and German taxpayers have one thing in common: bail-out fatigue. Republican Senators recently kicked up some fuss over the U.S.'s contribution to the IMF-loans intended for Greece and potentially other eurozone countries.

The Senators pushed through an amendment to the U.S.’s financial regulation bill which would direct the U.S. representative at the IMF to determine whether a country asking for IMF money is able to repay the institution. Under the amendment, if the representative believes the loan won’t be repaid because the borrowing country is too debt burdened (the threshold being 100% debt-to-GDP ratio) as is the case with Greece, the director would be forced to vote against the loan.

The amendment sailed through the Senate unanimously (94 yay, 0 nay), giving an indication of how little appetite there is for even more bailouts in the U.S.

Senator Cornyn, who introduced the bill, said, "American taxpayers have seen more bailouts than they can stomach, and the last thing they should have to worry about are their hard-earned tax dollars being used to rescue a foreign government. This will help prevent American taxpayer dollars from underwriting dysfunctional governments abroad."

Both the comment and the amendment should be seen in the context of American politics - and the uncharacteristic bail-outs in the wake of the financial meltdown. But the Senator is also describing the democratic deficit inherent in the ongoing eurozone bailout - on both sides of the Atlantic.

If the IMF bailout loans were put to a democratic referendum in the States, or if the Greek bail-out package was put to a public vote in Germany, they would certainly fail. But both will go ahead.

In the US, the amendment itself may not survive another negotiating stage, since the Democrats in the House of Representatives (where they hold a majority) are against it. And even if the amendment passes, the U.S. can not unilaterally block the loan, since the decision will be made by majority in the IMF and therefore the U.S. doesn't have a veto (the US share of the loans is currently estimated at 10-20%).

Of course, this type of scenario has now become business-as-usual for European taxpayers and voters.