Conservative Republicans are trying to stop the United States from participating in the bailout of overindebted European countries through the International Monetary Fund.
Rep. Mike Pence of Indiana, chairman of the House Republican Conference, is hosting what he calls a "Greek" forum on ending European bailouts Wednesday on Capitol Hill and has introduced a bill that would require the U.S. Treasury to oppose any further IMF loans to stricken European countries until all European Union members are in compliance with their own constitutional limits on debt — very few of them are.
Sen. Jim DeMint, South Carolina Republican, has introduced companion legislation in the Senate and is considering offering it as an amendment to the financial reform bill pending on the Senate floor.
Just the threat of the legislation, which has populist appeal among "tea party" groups, prompted Senate Democratic leaders late Monday to agree to a less stringent amendment to the bill that would prohibit the U.S. from participating in bailouts that are not considered likely to be repaid.
That amendment, which passed by a vote of 94-0, requires the International Monetary Fund to certify to the Treasury that it expects its loans in Europe to be repaid. However, Republicans say that amendment gives too much leeway to the IMF to judge as sound loan programs like the one to Greece that many private analysts think eventually will end in default or restructuring of the country's debts.
"America isn't even close to getting our own fiscal house in order and this is the worst time to ask taxpayers to borrow more from China to bail out other foreign nations," Mr. DeMint said.
"The U.S. debt is equal to nearly 90 percent of our [gross domestic product] today and we need to stop the runaway spending and find a way to pay our own bills instead of bailing out other nations," he said.
The anti-bailout measure, if adopted, has the potential to be disruptive to European and global financial markets, which have continued to gyrate over Europe's burgeoning debt crisis this week but were at least temporarily soothed when the loan package was announced last week. The more limited measure adopted by the Senate sent ripples through the markets Tuesday.
Mr. DeMint said the bill aims simply to hold European governments to their own standards. The treaty that formed the European Union specifies that the gross debt of members should not exceed 60 percent of economic output, but nearly every European country has violated that limit at one time or another and most are in violation of it today.
Whether a strategy of trying to dictate IMF policy from the Treasury would work is not clear. The U.S. is the largest contributor to the IMF and has an effective veto over IMF actions with a 17 percent voting share on the IMF board.
But any move to veto the European bailout program — to which the IMF is contributing about $330 billion in loans — would meet stiff opposition from European members that also hold sizable voting shares, and it might be opposed as well by Asian and developing nations on the board.
In a related move, the Senate on Tuesday failed to overcome Democratic objections to a Republican amendment to prohibit any federal bailout of overstretched cities and states.
For example, California has been posting annual budget deficits of near $20 billion. Both the state and many of its municipalities are considered to be on the brink of insolvency, not unlike their counterparts in Europe.
The amendment, introduced by Sen. Judd Gregg, New Hampshire Republican, would have prohibited any extraordinary federal assistance to such governments except in the case of disaster or other emergency. It mustered only 47 of the 60 votes needed to pass.
In other major action Tuesday, the Senate adopted a compromise amendment on enforcement of consumer protection rules to be written by a powerful consumer regulatory agency created by the financial reform bill.
The amendment, approved by a vote of 80-18, would allow state attorneys general to enforce the rules on behalf of the federal government, but federal regulators would be able to continue pre-empting state enforcement and regulation of national banks on a case-by-case basis.
Currently, federal regulators usually grant national banks blanket immunity from state credit laws and enforcement. The Senate rejected, by a vote of 55-43, a Republican amendment that would have continued the current policy, favored by banks.
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