The U.S. needs to convince creditors it can lower its budget deficit, while global authorities may be postponing steps to strengthen the financial system against future crises, Bank of Israel Governor Stanley Fischer said.
“We, the rest of the world, people who hold the debt of the U.S., have to have a well-founded belief that the U.S. is going to deal, as it has always dealt, with its financial problems in a responsible way,” Fischer told Bloomberg Television in Paris today. “There has to be progress in that direction, progress in convincing people that will happen.”
The U.S., whose debt may rise to 101 percent of gross domestic product this year, has yet to produce “credible medium-term plans” to reduce its shortfall, the Paris-based Organization for Economic Cooperation and Development said today. President Barack Obama’s administration is trying to reach an agreement with lawmakers on how to cut the shortfall as part of a plan to raise the legal debt limit from its current level of $14.294 trillion.
Global authorities may also be postponing measures to shore up the financial system, said Fischer, who was Federal Reserve Chairman Ben S. Bernanke’s thesis adviser.
“I worry a great deal about the fact that we have not yet reformed financial systems sufficiently to know that we’re not going to face a future financial crisis because of weaknesses in financial systems,” he said. “We have to worry about problems that are being put off, possibly for too long.”
Fischer, a former first deputy managing director of the International Monetary Fund, said the euro-region’s debt crisis doesn’t make it necessary for the fund to elect a European candidate to replace Dominique Strauss-Kahn, calling it a “not very convincing argument.”
Asked if he would like the post, Fischer said he plans to stay at the helm of the Bank of Israel. He didn’t say whether he’ll present his candidacy for the role, which he called “terrific.”
The Washington-based IMF and European governments made “absolutely” the right decision last year in giving Greece a 110 billion-euro ($155 billion) bailout without restructuring the nation’s debt, which amounted to 143 percent of GDP last year.
“The atmosphere was super-hot, super-dangerous at that time and changes could have led to a chain reaction that would have been very, very dangerous for the whole European economy,” he said. “It’s more relaxed now, it isn’t relaxed though.”