Geithner: Europe Must Act Fast to Survive Debt Crisis

Tuesday, 16 Nov 2010 01:21 AM

 

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Europe is perfectly capable of dealing with a debt crisis now besetting Ireland but it is vital that it not delay in doing so, U.S. Treasury Secretary Timothy Geithner said Tuesday.

"You want to make sure you move very, very quickly and you have a combination of policy reforms that help resolve the underlying problem with some temporary financial support to help countries manage through them," he told the Wall Street Journal CEO Council.

The remarks were Geithner's first public comments on Ireland's debt crisis and appeared to reflect concern that, if left to fester, problems could spread to other countries and imperil a fragile global recovery.

Ireland is being pressured by the European Central Bank and euro zone peers to take a quick decision on applying for aid amid signs that market contagion is spreading to fellow struggler Portugal and could infect bigger states. So far, Dublin is resisting calls to seek a state bailout and contends that only its banks may need help.

REMEMBER PAST FOOT-DRAGGING

European governments set up a fund last summer to make loans if necessary to member countries facing stability problems, but accepting money from it would likely come with conditions that might be unpalatable to Ireland.

But it took considerable time and Geithner said Europe should remember how troublesome it was to do so.

"Again, I would say the lessons of that experience, which Europe learned a little painfully last summer, is you want to do this quickly and decisively, not wait."

Geithner, who just returned from a lengthy tour through Asia and the Middle East that culminated in a Group of 20 meeting on Thursday and Friday in South Korea, was also asked about efforts to press China to let its yuan currency rise more quickly.

"They're very adverse to a precipitous large move, which I understand," he said, while again arguing that further movement was needed.

"It's not just important for China that they let the exchange rate move, it's important for the emerging world in particular, because a lot of those currencies that are more flexible have experienced a huge amount of upward pressure," Geithner added.

HIGHER YUAN WOULD DAMPEN INFLATION

The United States sought unsuccessfully to have G-20 members agree to specific targets for growth in their deficits or surpluses as an indirect means of affecting currency rates.

Geithner said if China resists letting its yuan currency rise, it could pay a price.

"If they don't let it rise, then all that pressure — that fundamental economic pressure that's the reflection of the fact that China is growing very rapidly, productivity growth is very strong — that pressure is going to end up in inflation ... it's going to end up in asset price bubbles, things that could threaten their capacity to grow in the future," he said.

On the domestic front, Geithner repeated the Obama administration wants a permanent extension of middle-class tax cuts that are set to expire at year-end but no tax cuts for wealthy Americans.

Since the Nov. 2 mid-term elections that saw President Barack Obama's Democratic Party lose control of the U.S. House, the outlook for extending the tax cuts has grown increasingly cloudy. Republicans and Democrats are jockeying for some compromise that may allow at least a temporary extension of all the cuts that date from the former George W. Bush administration.

Geithner said it was important for the current Congress to deal with the issue before it adjourns because uncertainty about tax rates is a hindrance to economic planning.

© 2014 Thomson/Reuters. All rights reserved.

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