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Is Greece the new France? Or the new AIG?

On Friday, David Weigel noted that "Greece" had begun popping up in Republican speeches where "France" used to be: It's "the nation whose name Republicans invoke to make the case against Democratic policies."

But Greece is serving another purpose, too: This is a bailout Republicans can finally be against. TARP, after all, was proposed by the Bush administration and attracted a substantial number of Republican votes in Congress. Not so with Greece. Which is why you see House Republican Conference Vice Chairman Cathy McMorris Rodgers acidly saying, "The U.S. isn’t asking Europe to help bail out indebted U.S. states such as California," and joining with Rep. Mike Pence to send a letter to Geithner and Biden opposing a European bailout.

You might wonder why this is becoming an issue, given that the Obama administration isn't bailing Greece out. Well, in something of a bank-shot argument, Republicans are saying that it is. The International Monetary Fund is extending loan guarantees to help Greece. Like other countries that are part of the IMF, the U.S. pays dues to the organizations. Those dues will help fund the aid package. So there's your bailout.

It's a clever, albeit ultimately disastrous, stance. At this point, it's genuinely hard to imagine anything that would be as devastating for the global economy -- which includes us, sadly -- than if Europe drops off a cliff. It would freeze our financial sector, destroy demand for our exports, destabilize other countries we trade with, and generally throw us all back into a recession.

By Ezra Klein  |  May 10, 2010; 11:11 AM ET
Categories:  Financial Crisis  
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"throw us all back into a recession."

Back? With an unemployment rate hovering between 9.7% and 10.2%, we're still in a recession. There ain't no going back to the place you ain't left yet.

That being said, it's not a good idea of let Europe fall off a cliff. Although simply giving the money is only going to help so much for so long, especially when that money is (a) purely debt, or in the form of loans, where the money costs money so they have to pay back more than they borrow, if they ever pay it back or (b) created by turning on the printing presses, which can become rapidly inflationary.

Still, Republicans want to say Democrats are giving money away to foreign powers while neglecting the voters here at home. And would probably say that, in some form or fashion, no matter what. It's not an argument for a particular policy approach.

Posted by: Kevin_Willis | May 10, 2010 11:19 AM | Report abuse

Kevin, I'm not an economist, so folks can feel free to correct me if I'm wrong, but my understanding is that "recession" is a technical term with a fixed definition, that is three straight quarters of negative growth. That being the case, it always irks me a bit when people misuse technical terminology. We're not in a recession anymore because we no longer fit the definition. The economy sure isn't in good shape, but it's something other than a recession. (unless there's a definition of recession that I don't know about, which is possible)

As to the post, not only does it seem like bad policy to oppose helping Greece, it seems like it's too complicated for it to a successful domestic political position. Going from the US paying dues to the IMF to the IMF helping Greece out with loans to the US bailing Greece out is a pretty big and complicated stretch to make on the cable shows. And then, of course, there's the fact that these sorts of loans are precisely why the IMF even exists.

Posted by: MosBen | May 10, 2010 11:27 AM | Report abuse

The unemployment rate does not define whether or not we are in a recession. Although the end has not been called we are in the X quarters of GDP growth phase coming out - provided we don't slip back in which is the whole point.

Meh...MosBen beat me to it.

Posted by: luko | May 10, 2010 11:35 AM | Report abuse

It's better to let things naturally readjust and cause a smaller recession now than to extend more credit, double the size, and increase the risk for the next one.

Of course, that logic doesn't apply to politicians who just want to paint a happy picture of today.

Posted by: staticvars | May 10, 2010 11:38 AM | Report abuse

Apologies. Quite correct, we're not in a recession. The economy just sucks. ;)

Did not intend to irk you, MosBen.

Posted by: Kevin_Willis | May 10, 2010 11:43 AM | Report abuse

ya mos ben is right. The point I think Kevin was trying to make that while we're technically in a recovery and not a recession it sure doesn't feel like one with the negative signs of lacking employment, credit still tight even with the ludicrous fed rates etc.

It is a short-sighted political ploy that the Republicans are doing. Its not as if the Dems don't do the same thing. In fact I heard on MSNBC earlier today talk of cutbacks in Medicare that will be needed in 5-10 years to rein in costs. But wait, i thought we were only fixing inefficiencies in Medicare not cutting back or rationing?

Another good point is that the euro connects groups that honestly (IMO) shouldn't be connected. Germany has limited ties to Greece except now as a source of credit to them through the IMF and this bailout. Also a little forethought could have made this amount much smaller. But they waited until it was far into the game to put a stop to it and remove all speculation.

Posted by: visionbrkr | May 10, 2010 11:43 AM | Report abuse

They're like kidnappers sending a series of ransom notes: the outrageous demands are always the same, but they have to use words culled from the day's newspaper.

Posted by: vagueofgodalming | May 10, 2010 11:44 AM | Report abuse

The Republicans better do really good this election for their own sake, so they can obtain the leverage of incumbency.

The reason I'm saying this is: Republicans have always strenously been a pro-business party, and they support capital gains cuts and low regulation and all that, but... aren't they risking alienating their capitalist supporters? This is just rhetoric, but the Obama administration has been a tremendous boon so far for corporate profits and stock holders, and Obama actively supports policies that help markets, while Republicans actively attack them. What with Bob Bennett and Charlie Crist, etc... are serious businessmen going to wonder if a capital gains tax is really worth a ruling party that will not respond decisively to financial crisis?

Posted by: philogratis | May 10, 2010 11:56 AM | Report abuse

"Its not as if the Dems don't do the same thing."

It might be me, but it seems like the Republicans are stretching the ploy. I'm guessing the Democrats might build on it, but you know . . . the Republicans impeached Bill Clinton. The Democrats never impeached Bush. And you know they wanted to. Really, really bad. The Democrats, as a party, seem to have about 3% more restraint than the Republicans.

But one thing definitely seems to be the case--the party out of power gets to be the party of raucous, no-account teenagers. Not that I would want them to sign on to everything the Democrats are doing, but I think some of their arguments lack coherence. And the Republicans seems remarkably short-sighted. If I saw a good political opportunity, I'd be saying, "How can I defeat my opponents and make it so I can govern when I get back in power?" The Republicans seem to end the sentence "How can I defeat my opponents?"

No matter how grown up the Democrats appear right now, what's their motivation to do anything but obstruct and cause trouble if they lose power? Haven't the Republicans handed them a whole set of tools with which to sabotage a future Republican majority?

Crazy, from a policy point of view, because the Republicans could really be moving forward in advancing a conservative agenda by forcing Democrats to compromise and compromise again, but finally accept those compromises. But I digress.

I'm not sure the Euro was such a hot idea, as it turns out. Of course, I was always a fan of science-fiction sounding "credits"--some unit of World currency abstracted from local currencies but easily convertible (at low or no cost) and acceptable (at least in every 1st world country) as legal tender, while local system keeps their own monetary system and monetary policy.

Posted by: Kevin_Willis | May 10, 2010 12:04 PM | Report abuse

The "official definition" is that the NBER takes into account a bunch of indicators of economic productivity (including unemployment), not just GDP itself. That said, MosBen's basic criticism is correct. It's growth in the economy that matters, not the particular level of employment. In particular, the NBER defines two recessions in the Great Depression, from 1929 to 1933, and from 1937 to 1938. Between 1933 and 1937, the economy grew and therefore it was not in recession, even though unemployment in that time stayed far above 10%. The economy just had a long way to grow before it was able to get back to reasonable levels of employment.

Posted by: usergoogol | May 10, 2010 12:14 PM | Report abuse

If we're going to go to our sci-fi proclivities, I always saw the Euro as a first step in the eventual erosion of European borders into somethine more like the United States. Sure, they'd run into a few bumps along the way, but rather than break them apart it would just push them towards strengthening the EU Constitution and government because there's just too much money in banding together to allow them to break up.

I have to say that the last couple weeks sort of dimmed my hopes in that regard, but this bailout and that they seem committed to defending the Euro at all costs, has reinvigorated my beliefs a bit.

Of course, all this eventually leads to a United Federation of Planets and Star Trek being real. Real, I tell you!

Posted by: MosBen | May 10, 2010 12:20 PM | Report abuse

Who cares as long as it sounds good? Drill baby drill.

Posted by: jldarden | May 10, 2010 12:21 PM | Report abuse

Has it not been noted yet that one of the main purposes of the IMF is to bail out countries using cheap loans in exchange for structural reforms? Sounds like the Republicans should just be honest and argue against US participation in the IMF.

Posted by: etdean1 | May 10, 2010 12:53 PM | Report abuse

etdean1, I did mention it. I did!

Posted by: MosBen | May 10, 2010 2:27 PM | Report abuse

The Republicans stand firmly in opposition to thinking about any issue for more than five seconds before choosing a stance.

Posted by: jeffwacker | May 10, 2010 2:42 PM | Report abuse

If there is no risk to the U.S., why did Simon Johnson estimate "the U.S. government's potential exposure at $10 billion to $50 billion," according to the LATimes?

Posted by: joeb4 | May 13, 2010 4:18 PM | Report abuse

Ezra Klein's post fails to make some important distinctions. The most important is that the United States is the largest contributor to the IMF and if the loans default then the nations that give money to the IMF will need to back it up, which means that the United States will be on the hook for the most money again. Also in light of the Greek Government Works violent protests about cutting government spending I don't have a whole lot of hope that Greece can be saved.
The current global financial criss and the severe risk is that Governments, not just our own have over extended themselves at the same time as setting up too big to fail companies and we have now put way too much pressure on tax payers, the only way out of this problem is to cut Government Spending, not look for ways in which we can be obligated to pay more.

Posted by: daveo2324 | May 13, 2010 5:35 PM | Report abuse

Hey Ezra, instead of engaging in a childish game of, "he did it first", why don't you grow up and recognize that we can not keep spending money like it grows on trees - it is killing our economy. And these same policies are on display all over the world; Greece is just the extreme example at the moment - I don't care if it was Republicans or Democrats spending the money; IT HAS TO STOP BEFORE IT IS TOO LATE!

Posted by: pdjskm | May 13, 2010 6:01 PM | Report abuse

Very interesting that Dems want to continue to try and spend our way into oblivion... no matter what the entitlement is. Whether it be a failing socialist government or some other "for the greater good" "the sky is falling" "collective over individual" redistributionist(new word) reason.

Maybe someone can help me understand the total dollar cost to the U.S. taxpayers that the IMF distribution, combined with the losses not yet realized in the US Govt purchase of euros... and finally the 2nd bailout of AIG (who is issuing the credit default swaps... again... betting against Greece) when Greece falls anyway? Is it more that a little?

Posted by: Dave_EDU | May 13, 2010 6:41 PM | Report abuse

I may well be the least economically sophisticated of all of today’s posters. But I would just like to know “Where does it all stop?”

It seems to me that we are being facing a hostage situation. And this is just the latest demand! But who are these financial terrorists, rioting in the Greek capital? They are the seemingly able-bodied public sector workers of Athens, who have been forced to take 14 months of pay for 12 or less months of work each year! Oh the cruelty of it all!

Greece is only 2% of the EU’s economy, which makes it a barely-visible speck in the world economy. Wake up Ezra and you too America. Stop the payments. Set an example. Break the cycle. If you do, you will send a message that Uncle Sam is not going to go around repairing the damage caused by every irresponsible governments on the other side of the pond. Tell them that we’ve got our own messes to clean up, like California, New York, Massachusetts, etc. Tell them it’s time for someone else to play the grownup… I ask again, Ezra, “Where does it all stop?” I’m running out of money!

Has anyone else noticed that all of the states that are in trouble over here are dominated by Democrats?

Posted by: monomoy3486 | May 13, 2010 7:25 PM | Report abuse

It's a bail out pure and simple and I wonder what Obama plans to tax next to fund the billions he is giving to the IMF. This is all part of the redistribution of wealth from the "rich" US to the poor, crumbling socialist states. The Obama administration prints and spends money like there is no tomorrow........ahhh there's the motivation; the intentional destruction of capitalism.

Posted by: mojharry | May 13, 2010 9:48 PM | Report abuse

Ezra Klein is a child. He has a child's view of the world. TARP was strong armed through. It failed the House the first time.

Klein seems not to understand the bailout of Greece is really a bailout of European banks. The idea is to take the Greek debts off the books of the banks and put even more debt onto the sovereign balance sheets. The Germans citizens understand that. Only child Ezra has missed it.

Posted by: RickCaird | May 14, 2010 7:10 AM | Report abuse

We have to bailout Europe?

If you had a friend that gambled away all of his savings and needed money to pay his bills, would you lend it to him?

Especially if he had his eye on the next race?

Of course not!

The US has funded the European social programs long enough. Time for the French and Germans to pitch in.

Posted by: mc221 | May 14, 2010 9:08 AM | Report abuse

If Ezra is for a bailout of Greece by the IMF and thus the US, if even in part, then opposing the bailout is probably the correct position to take.

Posted by: WriterDude | May 14, 2010 2:16 PM | Report abuse

What did we used to say about Arafat? He never passed up an opportunity to pass up an opportunity?

Something similar applies to the Republicans these days: they're always dumb enough to take advantage of an opportunity to say something dumb.

Please, could we have the intelligent conservatives back?

Posted by: Robt3 | May 14, 2010 4:31 PM | Report abuse

screw Greece and the EU. This is a great time to get American manufacturing BACK. Bailing out your competitors is not a bright business maneuver. Who will we sell to? Ourselves.

Posted by: kenema69 | May 14, 2010 8:29 PM | Report abuse

This is the only regime in US history that when the unemployment goes from 9.7% to 10%, they celebrate that as a great achievement and "jobs created". What a gangster. What a liar. YOU LIE!

Posted by: Choo_Choo_Mama | May 15, 2010 1:15 AM | Report abuse

Greece and Spain won't pay back. This was a calculated Risk, and a Lesson for the Banking System. What is happening in Greece, is a very well orchestrated show, to get granted €110bn aid, to avert meltdown. A new deception compared with the old Trojan Horse. The only thing Germans can do is:
REPOSSESS 170 Leopard 2AEX Battle Tanks from Greece, and 190 Leopard 2A6E Battle Tanks from Spain.
U.S.A must REPOSSESS 170 F-16 Jet Fighters from Greece, … the rest is gone with the wind …forever …
Greece must stop paying lucrative pensions with borrowed money, reform the free health care system, and cut down, 4 times the military budged.
Greece’s problem is too much debt. Greece has a budget deficit of 12.7% of GDP – meaning that the country is spending 12.7% more than the value of one year’s economic output.
Greece is no different to a serial credit card borrower who can’t pay back his loans. But just like a serial credit card borrower, as long as Greece keeps relying on borrowed money to fund itself, the problem won’t go away. It will just get worse.
But don't worry; the ECB, the Feds or both will print the money.
And all of us will share the pain, with our hard-earned money.
Bad is never good until worse happens.

Posted by: bluemonkey | May 15, 2010 11:23 PM | Report abuse

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