Geithner Predicts Europe Will Act With ‘Force’ on Debt Woes

U.S. Treasury Secretary Timothy F. Geithner
U.S. Treasury Secretary Timothy F. Geithner. Photographer: Joshua Roberts/Bloomberg

U.S. Treasury Secretary Timothy F. Geithner said Europe will act “with more force” to combat a sovereign-debt crisis that is threatening global growth.

“You are going to see them act with more force in the coming weeks and months,” Geithner said at a National Journal event in Washington today. “It’s a difficult challenge to do because it’s not just about financial support.”

Geithner spoke as finance ministers and central bankers from the Group of 20 nations gather in Washington for the annual meetings of the International Monetary Fund and World Bank, where the European crisis will be a focus. He said European countries will do what is necessary to address the debt crisis and they, along with the IMF, have the capacity to meet the challenge.

In an interview with Tom Keene on Bloomberg Television, IMF Managing Director Christine Lagarde said European governments must implement the programs they have agreed to fight the crisis and called on the European Central Bank to keep providing “solid, reliable” funding for countries and banks. She cautioned investors keen to see policy makers introduce new tools to “allow the time for democracy” to operate.”

The Greek government said today it will accelerate budget cuts to keep emergency loans flowing, extending austerity measures that have deepened a recession and failed to ease doubts that it can avoid default. The latest round of deficit fighting was demanded by international lenders to ensure Greece reaches targets in a 110 billion-euro ($151 billion) bailout and receive a payment due next month.

‘Years and Years’

For Europe, Geithner predicted “years and years of difficult financial pressure on those governments that were just living way beyond their means for a long period of time and have terrible growth prospects.”

“That’s just going to be a long challenge,” he said. “But they need this broader firewall in place to make sure Europe is protected from that inevitable set of pressures.”

Also speaking in Washington, Mohamed El-Erian, chief executive officer of Pacific Investment Management Co., said the world is on the eve of its next financial crisis with sovereign debt at its epicenter. The ECB has yet to create a “circuit breaker” to contain its region’s turmoil, he said.

Geithner, who has traveled to Europe in each of the last two weekends for talks with counterparts, said European countries are using the Washington-based IMF “for a transitional role” because it is a “mutual arbiter of the economics of reform both in designing and monitoring the compliance of those things,” adding, “this is an enormously consequential endeavor.”

‘Clouds’ Over U.S.

He said two “clouds” over the U.S. are the European crisis and the “deep concern you can see across the world and around the country about whether the political system in the United States is up to the challenges we face.” Geithner added that Europe’s crisis is “bigger than Greece because what Europe is trying to do is build the fiscal budget and financial complements” to the region’s monetary union.”

“There’s a broader recognition that without those broader fiscal and financial complements, their framework is not going to work,” Geithner said.

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