Good News for American Taxpayers (in the short run), Bad News for European Taxpayers

According to Financial Times report the politicians in Paris and Berlin want to set up some sort of European Monetary Fund to help bail out Greece and other profligate European nations. This is good news in the short run for American taxpayers since it is less likely that American taxpayers will be financing bailouts through the International Monetary Fund. But this is not good news for America in the long run. Bailouts will encourage bad policy in Europe, regardless of whether they are financed with European tax dollars or American tax dollars. This means more economic instability in the future. At worst, this means big future bailouts financed by the United States. But even in a best-case scenario, Europe will be poorer, and that means less trade:

Germany and France are planning to launch a sweeping new initiative to reinforce economic co-operation and surveillance within the eurozone, including the establishment of a European Monetary Fund, according to senior government officials. Their intention is to set up the rules and tools to prevent any recurrence of instability in the eurozone stemming from the indebtedness of a single member state, such as Greece. ...If France and Germany can agree on such proposals – long urged by Paris – they are likely to set the basis for the most radical overhaul of the rules underpinning the euro since the currency was launched in 1999. ...Both France and Germany agree Greece should not turn to the IMF for support, so the idea of an EMF has clear attractions for Paris, though it could hardly be set up in time to help Greece. Mr Schäuble said: “We are not planning a competitor . . . to the IMF, but we do need an institution for the internal equilibrium of the eurozone that would have at its disposal both the experience of the IMF, and comparable intervention mechanisms.” According to German thinking, the plan could include tough penalties for eurozone members that fail to curb deficit spending or run up excessive government debt. Ideas include cutting off countries that fail to curb deficit spending from EU cohesion funds, temporarily removing their right to vote in EU ministerial meetings and suspension from the eurozone.