U.S. Treasury Secretary Timothy F. Geithner said European leaders “recognize they’re going to have to do a bunch more” to stem the region’s debt crisis.
“This is a very challenging crisis for them still,” Geithner said today during a talk at the Council on Foreign Relations in Washington.
Spain and Italy appealed today to European policy makers to step up their response to the crisis after a 100 billion-euro ($125 billion) lifeline for Spanish banks failed to calm markets. Yields on Spanish debt due in 10-years climbed to 6.75 percent today, compared with 5.1 percent at the end of last year.
As Geithner spoke, Spain’s credit rating was downgraded three steps by Moody’s Investors Service, citing the nation’s increased debt burden, weakening economy and limited access to capital markets.
Spain’s bailout “is a good, concrete signal and illustration” of Europe’s commitment to move toward a “broader banking union,” Geithner said. He said a more integrated banking system is “important because of the pressures you’re seeing from Greece and elsewhere.”
Greece votes a second time in six weeks on June 17 after a May 6 ballot failed to yield a government. The Syriza party has promised to abrogate the terms of the 240 billion-euro ($303 billion) bailout from the European Commission, European Central Bank and International Monetary Fund, which calls for cuts that risk deepening the country’s worst recession since World War II.
Greece’s ASE Index climbed 2.1 percent today following a report in Financial Times Deutschland that European leaders may consider relaxing Greece’s austerity program after the election.
Geithner said Europe’s leaders have “decided that it is in their interest to hold it together,” referring to the euro zone. “And what they say to us privately is they will do whatever is necessary to hold it together.”
The region’s leaders “recognize they’re going to have to do a bunch more to sort of restore a bit of calm and to convince people that it was necessary to make this work,” Geithner said.
Leaders of the Group of 20 nations will meet in Los Cabos, Mexico on June 18-19. A U.S. official said today the leaders probably won’t announce significant progress on Europe’s crisis. Geithner will attend along with President Barack Obama.
The summit will give European leaders a chance to discuss economic concerns with heads of other major economies. European governments are more focused on building a consensus for a meeting of the 17-nation euro zone later in the month, the official told reporters on condition of anonymity.
To contact the editor responsible for this story: Chris Wellisz at email@example.com