A German-French push for closer economic ties in Europe won the backing of U.S. Treasury Secretary Timothy F. Geithner, who urged governments to work with central banks to erect a “stronger firewall” to end the debt crisis.
Geithner, speaking in Berlin yesterday after talks with German Finance Minister Wolfgang Schaeuble, praised the commitment to fiscal programs put in place by new governments in Spain, Italy and Greece, and said he was “very encouraged” by recent efforts to buttress the euro area. He welcomed “progress toward a fiscal compact for the euro zone,” echoing language used last week by European Central Bank President Mario Draghi.
Geithner’s comments backing German Chancellor Angela Merkel and French President Nicolas Sarkozy were more upbeat than his recent remarks urging Europe to move faster. In a September trip to Europe, Geithner asked leaders to set aside their differences to excise “catastrophic risks” from markets, prompting European criticism of U.S. debt levels.
“This of course will take time” and “a very substantial commitment and a sustained commitment of political will,” he told reporters. Financial crises are resolved when governments and central banks create “conditions that make it compelling for investors to take the risk involved in lending to governments and to banks.”
U.S. stocks rose, sending the Standard & Poor’s 500 Index to a three-week high, and the euro erased losses amid optimism European leaders are planning larger efforts to fight the debt crisis.
The S&P 500 climbed 0.1 percent to close at 1,258.47 after drifting between gains and losses for most of the day. French, Spanish and Austrian bonds fell after Standard & Poor’s said it may cut credit ratings on 15 euro nations and the European bailout fund. The euro was little changed at $1.3402 after slumping as much as 0.5 percent.
With an EU crisis summit scheduled for Dec. 8-9, Geithner said policy makers should work with the central bank to calm financial markets, without mentioning the ECB by name.
Geithner, who is due to holds talks with Sarkozy in Paris today after meeting in Frankfurt yesterday with Draghi and Bundesbank President Jens Weidmann, declined to comment on speculation that the ECB could step up bond purchases. Draghi said last week that “other elements might follow” if European leaders agree on a “new fiscal compact.”
“I’m here in Germany, of course, to emphasize how important it is to the United States and to the world economy as a whole that Germany and France succeed alongside the other nations of Europe in building a stronger Europe,” Geithner said.
Schaeuble said earlier yesterday that the Standard & Poor’s warning for 15 euro-area governments, including AAA rated Germany and France, will help force leaders ratchet up efforts to resolve the two-year-old crisis this week.
A day after Merkel and Sarkozy strengthened their push for new rules to tighten euro-area economic cooperation, Schaeuble called S&P’s warning the “best encouragement” to drive toward a solution at this week’s summit in Brussels.
Geithner said that the International Monetary Fund can play a helpful role in the crisis and that the U.S. will support its “constructive” efforts. U.S. officials have said that they don’t support new taxpayer money being given to the IMF for the crisis.
While Geithner said that “the eyes of the world are very much on Europe,” he said the U.S. continues to faces “very challenging” economic times.
“We have a lot of work ahead of us in laying a foundation for stronger financial fiscal reforms, in creating conditions for stronger growth in the future, in repairing and reforming our financial system,” he said.
Merkel and Sarkozy are leading the charge toward the latest crisis fix after agreeing to a joint position on automatic penalties for deficit violators and anchoring debt limits into euro states’ constitutions. Investors are looking toward such an agreement among euro countries to pave the way for intensified action from the ECB.
Geithner said he wouldn’t comment on what the ECB “should do or will do or can do.” The ECB has been playing a “central role in this crisis,” he said. “Obviously it’s going to continue to do that, and of course ultimately these things only get solved by governments and central banks doing what’s necessary. But their roles are different.”
The Treasury secretary will hold talks with Italian Prime Minister Mario Monti tomorrow in Milan. Geithner will return to Washington before the European summit.