U.S. Treasury Secretary Timothy F. Geithner predicted that European governments will step up their response to their region’s debt crisis after a chiding from counterparts around the world.
“They heard from everybody around the world” in Washington meetings last week, Geithner said on ABC’s “World News With Diane Sawyer” program. Europe’s crisis is “starting to hurt growth everywhere, in countries as far away as China, Brazil and India, Korea. And they heard the same message from us they heard from everybody else, which is it’s time to move.”
Geithner’s remarks maintain pressure on Europe ahead of finance minister and central bank gatherings next week and a decision on whether to disburse a loan Greece may need to avoid default. Speculation that rescue efforts will be strengthened spurred a rally in stocks even after Dutch and Finnish officials said they won’t boost commitments to a euro-area bailout fund.
Europe has “some time, but not very much time,” Geithner said in the interview late yesterday. “If you listen carefully to what they said this weekend, not just to us in private, but what they said publicly, they’re foreshadowing now the escalation that’s going to come. And we’d like them to get on with it.”
The MSCI Asia Pacific index of stocks gained 2.9 percent as of 11:48 a.m. Tokyo time, after national benchmark indexes rallied yesterday in all 18 western European markets except Greece and Norway. Futures contracts on the U.S. Standard & Poor’s 500 Index advanced 0.3 percent. The euro headed for a third session of gains, up 0.2 percent at $1.3554.
Euro-region finance chiefs committed at a gathering of the Group of 20 in Washington Sept. 22 to boost the flexibility of their rescue fund and “maximize its impact” by the time of the next G-20 conclave. Euro-area finance ministers meet Oct. 3. European Central Bank officials have indicated they will consider expanding liquidity provisions when they meet Oct. 6.
Geithner set the tone at the annual meeting of the International Monetary Fund and World Bank by warning that failure to combat the Greek-led turmoil threatened “cascading default, bank runs and catastrophic risk.” That gathering followed the G-20 session.
People’s Bank of China Governor Zhou Xiaochuan said at the talks that the euro-area crisis “needs to be resolved promptly.” Japan’s Finance Minister Jun Azumi said many G-20 members urged Europeans to implement a July plan to expand powers of the European Financial Stability Facility.
Azumi told reporters in Tokyo today that Japan may weigh expanding its support to Europe through a regional bond fund if nations implement their pledged fiscal measures.
European leaders “recognized the need to escalate,” Geithner said in the ABC interview. “They’re going to have to put a much more powerful financial framework behind this. I really believe that you’re going to see them do that, but we wanted to make sure they do it as quickly as they can and as definitively as they can.”
German Chancellor Angela Merkel said Sept. 25 that euro-region leaders must erect a firewall around Greece to avert a cascade of market attacks on other European states and said expanding the powers of the region’s rescue fund, known as the EFSF, was necessary to avoid contagion.
The challenge of debt sustainability in Europe is in part a consequence of the 1999 inception of the euro as a single currency, the U.S. Treasury chief signaled.
European governments took advantage of the lower interest rates “that came with monetary union, and they borrowed a lot. And they spent too much. And the governments got very big. Benefits got very generous,” he said.
Turning to the U.S., Geithner said “there’s a very good chance” Congress will approve President Barack Obama’s $447 billion jobs proposal. The plan, incorporating payroll-tax cuts and a $105 billion infrastructure program, is designed to help pull down the nation’s 9.1 percent unemployment rate.
Geithner was in Louisville, Kentucky, yesterday to meet with leaders from businesses including Ford Motor Co. to discuss the jobs proposal and to tour operations of package-delivery company United Parcel Service Inc.
The European crisis “hurts us not just because it means that growth around the world will be slower and we’ll export less, but it hurts people very directly and very quickly when stock prices fall and the value of their pensions fall,” Geithner said on ABC. “It makes people more tentative. And that’s why it’s so important to us that they move.”