My Big Fat Greek Bailout: Lessons for America

Meredith Turney
Thursday, May 13, 2010

In a worldwide recession, everyone feels the pain. But as the term “bailout” becomes increasingly ubiquitous, who should take responsibility for reckless government spending is also becoming a topic of serious discussion.

Last weekend Germany was the first European Union member to bite the bullet and approve its share of the $1 trillion in bailout funding to help with Greece’s economic meltdown. With all of their economies tied together through the EU, each member state has an interest in ensuring other states’ economic stability. While most of Europe faces hard times due to the recession, Germany is among the stronger states, and therefore must bear a greater share of the bailout burden. Unsurprisingly, Germans are chafing at the idea of bailing out a fellow EU government for its irresponsible actions.

Americans are also on the hook for the Greek bailout because of our commitment to the International Monetary Fund (IMF). As the largest contributor to the IMF, America will be sharing in the IMF’s $145 billion Greek bailout plan. That means United States taxpayers will be paying for the spendthrift decisions of politicians across the Atlantic.

This begs the question, why should one country bail out another country for its irresponsible decisions? That’s exactly what Germany and a host of other nations are beginning to realize. Unfortunately, it’s a lesson learned the hard way after they have already staked their financial future on a currency union with other governments. Closer to home, a similar analysis could be applied to the United States.

Earlier this week California Governor Arnold Schwarzenegger announced that the state will have to make “terrible cuts” to the state budget since California faces a $20 billion deficit—which will likely grow since tax revenue last month wasn’t at anticipated levels. California is the eighth largest economy in the world. That means its economy and budget woes place it at the forefront of the oncoming flood of government bankruptcies. In fact, media pundits have been uttering the name California in the same breath as Greece and other teetering nations.

As talk of the federal government bailing out California has increased, other Americans are posing the same question as Germany: why should we bail out our irresponsible neighbors? Why should Texans pay for the reckless spending decisions of Sacramento legislators?

Ultimately, it’s not just the legislators who should take responsibility for their actions, but the people who sent them to Sacramento or Athens. It’s not just geography; it’s community. Communities develop from a group of people who want to live in a state, county, city and neighborhood with those who share basic values. Not necessarily every value, but the essential values that create that community.

If each of us wants to assist a fellow human being when they’ve made mistakes or need help, isn’t it far more effective when we live in community with that individual? Or if a legislator is spending my hard-earned tax dollars on frivolous government expenditures, we should be able to talk directly to that legislator and vote on whether he or she will retain their office.

What is lost in the big state confederations such as the European Union is the ability to hold representatives accountable and suffer the direct consequences of poor community decisions. Instead of what would otherwise be a localized, intranational problem, the entire world must share in the burden. Instead of Greeks grappling with the poor decisions they made in sending spendthrift politicians to Athens, 16 other euro-zone countries (and IMF contributing nations) will pay.

While American states have the freedom to direct their budgets and spend as much as they like, they shouldn’t expect a bailout from the federal government, and by default, the other 49 states.

Economists are warning that Greece is merely the first domino to fall in a chain of government defaults that will soon circle the globe. The epidemic of wasteful, reckless government spending is an international problem. Bailing out every nation that has wracked up deficits is impossible and it sends the wrong message.

Consider this headline from the Wall Street Journal: “EU Bailout Sparks New Challenge: Reining In Free-Spending Countries.” EU observers and economists alike have noted that the Greek bailout will only serve to deter other nations from cutting their own spending. After all, if the rest of Europe and the IMF will rush to their aid, what’s the incentive for making hard choices now, and risking public wrath for cutting government programs?

Trillion dollar bailouts for profligate government spending is the definition of enabling. Only in this instance, it’s not a enabling a friend or family member battling some personal issue, it’s millions of lives and trillions of dollars on a worldwide government and economic scale. The problem with enabling is that neither the enabler nor the enabled is truly helped. In the case of bailouts, neither the bailee nor the bailer really benefit. Ultimately, it’s the hardworking taxpayers who are left holding a very expensive, but worthless, bag.