U.S. Treasury Secretary Timothy F. Geithner said Europe must “choose” to solve its debt crisis so its fate doesn’t rest with financial markets or the nations that back the International Monetary Fund.
“One of the starkest ways to emphasize the importance of Europe getting on top of this is that you don’t want the fate of Europe to rest in the hands of those who provide financing to the IMF, or who provide financing outside of the IMF,” Geithner said at the Eurofi conference in Wroclaw, Poland.
The Treasury chief said European leaders need to work together to avoid setting off contagion and a “protracted” downturn. He flew over from Washington for the day to meet with European Union finance ministers and central bankers, his first-ever appearance at one of their scheduled meetings.
Investors have fled from the euro and EU sovereign debt this week as expectations rise that Greece will default. EU ministers have been unable to decide how to implement a second Greek rescue plan that was agreed on in July.
Geithner said “ongoing conflict” between national governments and the European Central Bank is “very damaging from the outside,” since cooperation will be required to solve the crisis. ``You have to, governments and the central banks have to, take out the catastrophic risk from markets,'' he said.
The U.S. wants to do whatever it can to help Europe manage “more adroitly” and avoid recession, Geithner said.
“Your financial challenges in Europe are eminently in your capacity to manage financially, you just have to choose to do it,” Geithner said.
Geithner said Europe needs to act to rule out the threat of cascading default and “loose talk” that the euro and other EU institutions might be dismantled. Such speculation encourages market contagion and creates “run dynamics” as investors rush to sell their European holdings.
If governments can’t “definitely remove” those threats, “then you are going to leave markets having to hedge against the low probability event that those things will unfold, and that will completely undermine the strength of the things you have been building,” Geithner said.