I’m flabbergasted at the developing nations’ proposal to bail out European nations from their self-created crisis. If you don’t know already, India has proposed to contribute $10 billion (approx. Rs. 55,000 crore) to the IMF.

An obvious reason (excuse!) given in favor of such astronomical contribution is that the crisis, if not contained at the earliest, could severely harm India and the world economy. It is also anticipated that our “loan” is essential in order to have more say (voting power) as shareholders of the IMF and to play a leading role in the world economy. Who cares if India has its own poverty and hunger problems to deal with (before being reasonably capable of helping external allies)! It is also totally immaterial to our ministers that literally thousands of crores of taxpayers’ funds are wasted in India in the name of food, fuel, and fertilizer subsidies without even fractionally alleviating poverty and hunger.

There are strong reasons why bailouts must be vehemently opposed. European crisis is nothing less than an attempt at suicide. It is created voluntarily, not through natural causes. Take, for instance, Greece: the socialist disease of ‘entitlement programs’ in Greece has left the nation totally destroyed.

The Greek government doles out millions of euros each year in (1) public wages and (2) pension payments. To understand how these two (in addition to other entitlement programs) contributed to the recent Greek crisis, note that both items combined make up almost half of the nation’s annual budget. Public wages mean compensation payments (wages, salary, etc.) to millions of government employees. Superficially, it may seem charitable that the government employs so many people and also pays them generously. But economics is often counter-intuitive — a public policy that initially seems beneficial may actually backfire and cost the nation a fortune!

How so?

1) Public wages ultimately come out of taxpayers’ pockets. Government taxes the citizens and distributes (often ineffectively) the collected funds among its servants in the form of wages. This wouldn’t be a big problem except for the fact that the Greek government doesn’t really know how many people actually work in civil service. By its very nature (incompetence), the government finds it difficult to keep track of so many employees.

Also, note that government funds are limited and depend on the amount of tax collected. Paying out huge salaries to millions of government employees is unsustainable in the long-term. How much will you tax people? The government eventually HAS to run out of funds. On the other end, paying low salaries to its employees is also unsustainable as it would seriously hamper the quality of service delivered to the citizens. The only solution, therefore, is for the government to hire very FEW employees and pay them high wages.

2) In addition to this, public employees in Greece are provided other entitlements such as (a) a bonus equal to the salary of extra two months and (b) a guarantee of long-term employment. Such undue benefits (out of taxpayers’ money) only end up making people lazy. It is grossly unfair to tax hard-working people (and businesses) and use this tax-collection to fund the prodigal citizens. Similar argument can also be made for unwarranted pension payments.

The truth is entitlements DON’T work! They are a symptom of the disease called socialism — which has only ended up making countries poor. Wouldn’t it be wiser instead to use $10 billion for strengthening the domestic economy through providing tax-reliefs to private businesses and investing in increasing agricultural productivity? Yes, Europe’s economic recovery is crucial for all of us, but there’s no guarantee that donating (or loaning) funds to IMF will pull Greece out of the crisis that it created out of its own accord. There’s also no guarantee that Greece will not make the same blunders again.

A truly capitalistic system punishes the loser and rewards the winner. It doesn’t bail out losers only to encourage other potential losers to take more risks in future, fully confident that foreign taxpayers will save them in case of a default.