-- The author is a Reuters Breakingviews columnist. The opinions expressed are his own --
By James Pethokoukis
WASHINGTON, May 10 (Reuters Breakingviews) - Elections have taught a U.S. senator from Utah and Angela Merkel's political party in Germany the same harsh lesson: Taxpayers loathe bailouts, whether of banks or nations. But opponents of such rescues need instruction, too -- in the costs of the panic and destruction that would otherwise have ensued.
It's a tough political sales job to turn the negative connotations of an expensive bailout into credit for avoiding a disaster that didn't happen. Senator Robert Bennett of Utah found that out. His 2008 vote in favor of the $700 billion Troubled Asset Relief Program was a key reason why Republicans in his home state overwhelmingly rejected the three-term representative as their party's candidate in November's congressional elections.
The same goes for Germany's governing party and its allies. They suffered a crushing defeat in a key regional election, just days after Merkel pushed the Greek rescue package through the nation's parliament.
Of course, voters should be skeptical of paying for other people's financial mistakes. But it seems short-sighted for them to penalize politicians when they actually do something that's unpopular but right. And the TARP bailout does seem to have been the right thing. Despite its high sticker price, the final cost to American taxpayers will likely be a fraction of that thanks to speedy bank repayment of government capital injections.
The alternative -- letting Citigroup , American International Group and other financial institutions fail -- could have sent U.S. unemployment to 13 percent instead of 10 percent, Federal Reserve officials reckon. And rather than growing at 3-4 percent, the economy might still be shrinking. The cost of further output shrinkage and declining asset prices would easily have been in the trillions.
Avoiding that result hardly seems like a failure. The EU's 750 billion euro "shock-and-awe" rescue plan, in the same vein, has dramatically reined in runaway bond yields as fears of a systemic collapse have abated. Hindsight will only recognize success if European nations manage to reduce their debt loads, just as TARP merely bought U.S. banks time to raise private capital and restore confidence. But if politicians do keep the pressure on for that kind of follow-through, maybe they deserve a bit more credit.
CONTEXT NEWS
-- U.S. Senator Bob Bennett, a conservative Utah Republican, failed in his bid for re-election in a state convention on May 8. Businessman Tim Bridgewater and upstart attorney Mike Lee claimed first and second place in a second round of voting in the party poll, beating Bennett who was first elected to the Senate in 1992.
-- Conservative Tea Party activists -- loosely organized around demands for lower taxes, reduced spending and more limited government -- have targeted mainstream Republicans in the run-up to congressional elections in November. Bennett, who won his third term in 2004 with 60 percent of the vote, has been attacked by the right for supporting the Wall Street bailout.
-- German Chancellor Angela Merkel's alliance of conservatives and pro-business Free Democrats, the FDP, lost a state election in North Rhine-Westphalia, Germany's most populous state. Merkel's support for bailouts of banks and, most recently, Greece has been unpopular in Germany and figured in the final phase of the North Rhine-Westphalia election. Merkel's loss in the state means she will have to rely on opposition parties to pass her policy agenda, which had included billions of euros in planned income tax cuts.
-- Reuters news stories: [ID:nN08219363]
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-- For previous columns by the author, Reuters customers can click on [PETHO/]
(Editing by Richard Beales and Martin Langfield)
((james.pethokoukis@thomsonreuters.com)) Keywords: BREAKINGVIEWS BAILOUTS/
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