IMF Managing Director Christine Lagarde has been talking up the need for greatly expanded resources to bail out ailing European economies.
European nations have offered to channel about $200 billion of their own funds to themselves through the IMF (a kind of gentleman’s money-laundering to avoid restrictions in their own treaties). Lagarde wants others to add $300 billion to that kitty.
The U.S. Treasury has said no, and rightly so. Replacing current euro-debt with IMF loans, no matter how rigorously structured, will only prolong the agony. The failing euro-zone economies need to get their fiscal and economic houses in order. That means reining in government spending now, not more debt, and aggressively pursuing economic policies such as labor market reforms that can ignite growth rather than paying lip service to growth as a throwaway line at the end of a speech.
Even talking about the possibility of big IMF bailouts may be having a negative impact, because it suggests more time and more debt before real action is taken. The governments and their lenders were reportedly close last week to a deal in which bond-holders would accept 50 cents on the dollar for their current debt. Now that deal is in trouble.