Why Osborne should take a lesson from Gingrich
January 28, 2012 § Leave a comment
Osborne looks as though he want to increase Britain’s contribution to the IMF. Speaking at the World Economic Forum the Chancellor said there was a ‘strong case’ to increase funding in order to build a bailout fund for struggling EU countries.
Osborne is working against a tide of Euro-scepticism from his backbench and a populous that seems hell bent on ignoring economic common sense in favour of some short sighted national sentiment.
After Cameron’s anti-EU bounce in the polls Osborne is going to have a hard time explaining why Britain should increased its contributions to the IMF to £10bn.
If the Chancellor did make this increase it could also be seen as a U-turn. In October Osborne made this announcement:
“Britain will not be putting money into the bailout fund either directly or through the IMF… the IMF exists to support countries, it does not exist to support currencies. The IMF contributing money to the eurozone bailout fund, no; Britain contributing money to the eurozone bailout fund, no. That is Britain’s clear position.”
If Osborne can’t persuade his backbenchers or face the poll ratings from the British public there may be an alternative.
In December 1994 when Mexico had only $6 bn dollars in the bank and a loan repayment of $25 bn in the next year the US did the only sensible thing, it hastily put together an emergency bailout fund. Championed by Newt Gingrich and with support from both democrats and republicans, the US put together two bailout funds which totalled $70 bn. Support also came from the international community and the IMF, this meant that from the beginning of the crisis the total offered to Mexico was around $90 bn, a small price to pay to protect the US’s southern border towns from being crippled with immigration.
The money the US offered to Mexico was in short term loans which motivated the struggling country to pay them back as swiftly as possible. After they had been repaid the US earned $500 bn from the deal.
Of course the EU is far more multifaceted and complex than the bilateral bailout of Mexico. However, what this shows is that even in 1994 the IMF wasn’t the only option. If Osborne is both serious about his government’s position on the international economy and sensitive to the role Britain must play as a responsible international citizen, he could still find a way to build an EU bailout fund outside the limelight of the IMF.