European Debt Crisis

Europe looks to the IMF

John Dimsdale Dec 8, 2011

Stacey Vanek Smith: In European debt crisis news, all eyes are on the European Central Bank this morning. It’s expected to cut interest rates to try and spur borrowing and lending and to get Europe’s economy growing again. As for Europe’s single currency, the euro — it’s likely to need a bailout from the International Monetary Fund.

The IMF was set up during World War II to help stabilize the global financial system. A lot of its money comes from the U.S. and now some in Congress worry American taxpayer money is a risk.

John Dimsdale reports.

John Dimsdale: The U.S. is historically the biggest contributor to the IMF, with a share of about $65 billion. In 2009, reacting to international financial turmoil, the U.S. contributed $107 billion more.

Republican Congresswoman Cathy McMorris Rodgers is sponsoring legislation to withdraw that extra credit line so taxpayers aren’t on the hook.

Cathy McMorris Rodgers: We’re also broke. So in essence, we’re borrowing money from China in essence to help bail out the European Union countries.

If the IMF lends to European countries, could they default? Ted Truman at the Peterson Institute for International Economics says no contributor to the IMF has ever lost money.

Ted Truman: The International Monetary Fund is a preferred creditor in the whole international financial system, so that means it always gets paid first. So the level of risk is essentially zero.

Truman says a pullback of U.S. support for the IMF would cause a collapse of the international financial system.

In Washington, I’m John Dimsdale for Marketplace.

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