Geithner to Press Europe to Move Faster on Crisis

Thursday, 13 Oct 2011 07:14 AM

 

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Treasury Secretary Timothy F. Geithner will increase pressure this week on his European counterparts to act forcefully amid U.S. concern that the continent’s debt crisis is hurting the global economy.

“The consequences of delay are growing,” Lael Brainard, Treasury undersecretary for international affairs, said in a press briefing in Washington yesterday. “Against a backdrop of elevated risks to the recovery, the United States will intensify our call for resolute action.”

Geithner, 50, will attend the Group of 20 finance ministers meeting starting tomorrow in Paris. The crisis has pushed Greece to the brink of default, shaken world markets and fueled speculation the 17-nation euro currency might not survive in its current form.

Geithner told Bloomberg Television Oct. 11 that “the Europeans recognize that they have to put in place a much more substantial, much more powerful response if they’re going to achieve their objectives, which is helping countries reform.”

This will be Geithner’s third trip to Europe in five weeks to consult his counterparts. He has not publicly specified any plan for the euro area.

Europe “presents the most serious risk to the global recovery,” Brainard, the department’s top-ranking international official, said during yesterday’s briefing. “We in the United States have a very significant stake. Europe’s strength and stability matter greatly to the confidence of our own consumers and financial markets, and to our recovery.”

European Rebuff

The Treasury secretary’s trip to Poland last month ended with European counterparts rebuffing his suggestions and taking shots at U.S. economic woes.

Swedish Finance Minister Anders Borg said then that “the situation would be better if the U.S. could show a sustainable way forward.” Austrian Finance Minister Maria Fekter said she thought it was “peculiar that the Americans, although they themselves have significantly worse fundamental data than the euro area, explain to us what we should do.”

German and French leaders pledged at a meeting Oct. 9 to devise a plan to recapitalize banks, help Greece and strengthen Europe’s economic governance. German Chancellor Angela Merkel, after meeting French President Nicolas Sarkozy, said Europe will do “everything necessary” to ensure that banks have enough capital.

Window Money

“U.S. authorities are concerned that the Europeans have not put enough money in the window, in some sense, to convince the markets,” Edwin M. Truman, a former assistant Treasury secretary who’s now a senior fellow with the Peterson Institute for International Economics in Washington, said in an interview.

The European Union’s top banking regulator has discussed plans to require banks to maintain a capital benchmark of 9 percent following a review of their reserve levels, according to a person familiar with the talks.

That figure would be a benchmark for assessing whether lenders have enough capital to withstand sovereign-debt writedowns in the wake of the crisis, said the person, who couldn’t be identified because the talks are private. The European Banking Authority discussed the possible 9 percent threshold at a meeting of its supervisory board in London last week, the person said.

Recapitalize Banks

U.S. officials are likely to maintain their message that Europe needs “to recapitalize their banks or impose losses on private investors,” said Phillip Swagel, who was an assistant Treasury secretary for economic policy in the George W. Bush administration. “The longer they wait, the more uncertainty there will be.”

European governments “want to send a message to their countries that ‘we can handle this, we don’t need anyone telling us what to do,’” said Paul Pilecki, a partner at law firm Kilpatrick Townsend & Stockton LLP in Washington.

Still, Geithner can’t “change his tack,” said Pilecki, who represents banks on regulatory matters. “He has to be persistent about what he thinks needs to be done.”

At the meeting last month of European Union finance chiefs and central bankers in Wroclaw, Poland, Geithner urged European leaders to set aside their differences to excise “catastrophic risks” from the markets.

He also floated a variation of a 2008 policy he developed while president of the Federal Reserve Bank of New York to expand the reach of Europe’s bailout fund that would use leverage in a partnership between euro governments and the central bank, according to Irish Finance Minister Michael Noonan.

“My experience largely has been they welcome both the support we’re giving them and they welcome the advice,” Geithner said Oct. 5. “Although they like to remind people that the U.S. has a lot of challenges to do, and no one feels that more strongly than we do.”

© Copyright 2014 Bloomberg News. All rights reserved.

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