Geithner's Europe Trip Highlights Focus on World Economy
Geithner's Europe trip focuses on global economy
Chris Ratcliffe/Bloomberg
U.S. treasury secretary Timothy Geithner arrives at Downing Street for his meeting with U.K. chancellor of the exchequer George Osborne in London.
U.S. treasury secretary Timothy Geithner arrives at Downing Street for his meeting with U.K. chancellor of the exchequer George Osborne in London. Photographer: Chris Ratcliffe/Bloomberg
May 25 (Bloomberg) -- U.S. Treasury Secretary Timothy Geithner talks with Bloomberg's Peter Cook about China's policy on yuan revaluation and trade relations. Geithner, speaking in Beijing at the end of two days of discussions with Chinese leaders, also comments on Europe's debt crisis and efforts to reduce the U.S. deficit. (Source: Bloomberg)
Treasury Secretary Timothy F. Geithner’s trip to Europe today shows how his focus is shifting to global economic threats as Congress puts the finishing touches on its overhaul of financial regulations and the U.S. winds down bailout programs.
Geithner has two days of meetings in London, Berlin and Frankfurt with leaders including European Central Bank President Jean-Claude Trichet to discuss the nearly $1 trillion rescue package aimed at stopping the Greek debt crisis from spreading. The trips were tacked on to Geithner’s visit to China, which ended yesterday, as the euro fell to the lowest in almost nine years against the yen.
“To the extent that the near-term fires in the U.S. have been put under control and progress has been made on reg reform, he can now spend the time, as he should, engaging globally with other global leaders to make sure we’re acting in a coordinated manner,” Neel Kashkari, who headed the $700 billion Troubled Asset Relief Program under Geithner’s predecessor, Henry Paulson, said in an interview. Kashkari now heads new investment initiatives at Pacific Investment Management Co., which runs the world’s biggest bond fund.
Geithner’s trip comes amid warnings that fallout from the European debt crisis threatens the global economic recovery. Corporate and sovereign credit-risk indicators reached or approached their highest levels in 10 months yesterday.
Geithner is stepping into the crisis just as he tries to resolve another. Along with Treasury Deputy Secretary Neal Wolin and Assistant Secretary Michael Barr, he will work with U.S. lawmakers to close the differences between the Senate bill on financial regulations approved this month and the House version passed in December.
London, Berlin Meetings
The Treasury secretary will meet today in London with U.K. Chancellor of the Exchequer George Osborne and Bank of England Governor Mervyn King, before traveling to Frankfurt for a working dinner with Trichet. Tomorrow, he will see German Finance Minister Wolfgang Schaeuble in Berlin.
European leaders face “the difficult challenge of trying to restore sustainability to an unsustainable system,” Geithner said yesterday in Beijing, where he took part in the two-day U.S.-China Strategic and Economic Dialogue.
Other officials have gone further. Federal Reserve Governor Daniel Tarullo said May 20 that Europe’s crisis may pose a threat to the U.S. and world economies as trade shrinks and banks incur losses on European investments. Former Fed Chairman Paul Volcker, an adviser to President Barack Obama, spoke May 13 of the euro’s “potential disintegration.”
Euro’s Slide
The euro today fell to $1.2282 at 10:59 a.m. in Tokyo from $1.2345 in New York yesterday, when it touched $1.2178, the lowest since May 19. Europe’s common currency dropped to 110.69 yen from 111.39. It fell to 108.84 yen yesterday, the least since November 2001.
The London interbank offered rate, or Libor, for three month loans in dollars advanced yesterday to 0.536 percent, the highest level since July 7, according to data from the British Bankers’ Association.
Geithner, 48, is returning to a familiar arena. Before serving as president of the Federal Reserve Bank of New York from 2003 to 2009, he was the International Monetary Fund’s director of policy development and review. He was undersecretary of international affairs from 1998 to 2001 under Treasury Secretaries Robert Rubin and Lawrence Summers.
Geithner, whose father worked abroad for the Ford Foundation, attended high school in Thailand, has studied Japanese and Chinese, and also lived in China, Japan, India and East Africa.
Resolving Differences
“It’s always helpful to understand where people are coming from,” Geithner said in a Bloomberg Television interview yesterday. “It’s easier to resolve differences and challenges when you come to that appreciation.”
Unlike Rubin, who dealt with emergencies in Latin America, Russia and Asia, Geithner is stepping into a developed-world crisis.
“There’s always been an understanding that Third World sovereign debt is very risky, but the assumption has been that the developed countries are pretty riskless,” said Wayne Abernathy, an executive vice president at the American Bankers Association and a former Treasury assistant secretary. “Now we’re discovering that might not be correct.”
The U.S., with a budget deficit forecast at $1.6 trillion for the fiscal year that began Oct. 1, may also be at risk, according to Pimco.
The U.S. is among nations whose debt puts them in a “ring of fire” along with Japan, U.K., Spain, Italy, Ireland, France and Portugal, John Wilson, the head of Newport Beach, California-based Pimco’s Australia unit, said in a May 24 statement.
Winding Down TARP
As companies including Citigroup Inc. and Bank of America Corp. have paid back taxpayer bailouts, Geithner has been able to wind down rescue efforts and focus more on international issues. The projected cost of the TARP, which was authorized by Congress in October 2008, has fallen to $105.4 billion from an estimated $341 billion as recently as last August, the Treasury said last week.
Geithner’s foreign travels will require him to be diplomatic at home, where lawmakers are wary of any U.S. role in bailouts for foreign nations. House Republicans last week introduced a resolution disapproving of U.S. participation in IMF rescues of European Union countries that don’t comply with the bloc’s debt and deficit limits.
Given the role of U.S. banks in the global economic crisis that started with the collapse of Lehman Brothers Holdings Inc. in September 2008, Geithner will also need to be diplomatic in his talks with European leaders.
“I don’t think he’s going to go over there and start saying, ‘Here are the answers, you must do this,’” said Kashkari, 36. “I think he’ll be much more subtle than that.”
To contact the reporter on this story: Ian Katz in Washington at ikatz2@bloomberg.net.
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