The IMF would be a useful scapegoat

The US is less engaged in the response to Greece’s crisis than it should be. For the US, and the EU, a role for the IMF would be good.

In recent weeks, the Greek debt crisis now embroiling European bond markets has been seized upon by conservative commentators in the United States as evidence of the troubles awaiting the US if it does not decisively cut government spending.

This use of Greece’s plight as yet another debating point in Washington’s ideological struggle over the role of the state in the economy short-changes the US’s long-term economic, security and foreign-policy interests in an effective European response to this crisis.

Europe is the US’s largest export market. But, in part due to the Greek crisis, the euro has fallen in value by 8% against the dollar since November 2009, making US products more expensive for Europeans. An extended period of weakness for the euro would undermine the ambitions of President Barack Obama’s administration to double US exports in the next five years.

Moreover, any threat to the euro and the cohesion of the EU runs counter to US interests. Washington has long supported European enlargement, for example, as a means of spurring economic growth and democracy in central and eastern Europe. The Greek crisis could easily slow down the EU’s expansion.

In addition, the intra-European strife that the Greek turmoil may engender will make it even harder to get unified European positions on issues of interest to the US, such as climate change and global financial regulation.

Obama should therefore rethink his decision not to attend the proposed US-EU summit in May. Obama needs to be there to show solidarity with the Europeans in their hour of need, to encourage them to get their act together, and to forcefully articulate US interests in their crisis management.

In particular, Obama should lean on Angela Merkel, Germany’s chancellor, to stimulate consumption in Germany, so as to ease the intra-European trade imbalances. In times of trouble, surplus countries have responsibilities, just as deficit nations do.

Moreover, Obama should articulate Washington’s interest in having the International Monetary Fund (IMF) manage and fund a Greek bail-out. It is understandable that Europeans want to clean up their own mess. But self-reliance is only admirable if it has a reasonable prospect of working. The European Commission lacks experience of overseeing the kind of structural reforms needed in Greece. And Berlin, which would have to be the largest pay-master for any bail-out, faces populist opposition to writing cheques to Athens – opposition that could easily undermine the Merkel government at a time when Washington needs it on other issues.

The IMF is already helping Hungary, Latvia and Romania restructure their economies. Moreover, the IMF can tap its own reserves to help pay for the effort, which, from a US geopolitical viewpoint, would be preferable to Greece borrowing from Russia or China. And the IMF could serve as a useful scapegoat for the populist anger that the necessary cutbacks in Greece’s public spending will create. For the sake of the US’s interest in future European solidarity, it would be better if the inevitable protests in Athens were to vilify the IMF rather than Brussels and Berlin.

Athens and Brussels face no easy policy choices in the weeks ahead. To paraphrase that renowned economist Woody Allen, Europeans are at a crossroads. One path leads to utter hopelessness and despair, the other to total extinction. Americans can only hope that Europeans have the wisdom to find a better path. And, since the choice they make will affect US interests, Washington can ill afford to stand on the sidelines.

Bruce Stokes is a transatlantic fellow with the German Marshall Fund and a columnist on economics for the National Journal.

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