May 19, 2011 11:19AM

Europe Has Done Enough Harm to the IMF

With Dominique Strauss‐​Kahn (DSK to his friends and lovers) having finally resigned as head of the International Monetary Fund, the race has begun among those in Europe who wish to succeed him. First, the real debate should be over how soon can we shut down the IMF, not over who should be reaping the spoils. Its original purpose under Bretton Woods became irrelevant decades ago. And while it found a new role as bailout fund for international banks, this new role is not one we should be supporting.

Given we are probably stuck with the IMF, the question becomes who should run it. Europeans are now arguing that the European sovereign debt crisis displays the need for Europe to remain in control. In fact I believe it demonstrates the opposite: European politicians have time and time again proven they cannot be trusted with a large pot of taxpayer’s money, whether it is the Greek government or the IMF. To put another European in charge is the financial market equivalent of letting the alcoholic guard the liquor cabinet. Any European politician will likely hand out funds without any real strings attached. Just as a European‐​led IMF was all too happy to force restructuring on developing countries (rather than allow Western bondholders to take a loss), real reductions in government spending should be required of any country accepting IMF assistance. Else the losses should be imposed on those who gambled: the bondholders. If we fear such losses will push European banks into failure, then deal with those failures directly, honestly and transparently. Citizens around the world are tired of bank bailouts, backdoor or otherwise. As long as the political elite remained deaf to public objections to the bailouts, we should not entrust these same politicians with the IMF.