U.S. Treasury Secretary Timothy F. Geithner urged European leaders to bolster their crisis-fighting bailout funds, warning more outside support wouldn’t be forthcoming without them acting first.
“The only way Europe’s going to be successful in holding this together, making monetary union work, is to build a stronger firewall,” Geithner told the World Economic Forum’s annual meeting today in Davos, Switzerland today. “That’s going to require a bigger commitment of resources.”
The call, reinforced by the International Monetary Fund, shows the irritation of foreign policy makers that Europe hasn’t put up more cash itself to defeat its two-year debt turmoil. Geithner’s French and Spanish counterparts today spoke about the value of erecting a larger deterrent to ward off speculators, while Germany’s said the focus should remain on restoring fiscal order.
In his sixth trip to Europe since September, Geithner said the IMF would likely be willing to support the euro-area’s rescue efforts “but not as a substitute for a more effective” domestic response first.
European officials plan to reassess in March a planned limit of 500 billion euros ($657 billion) on overall rescue lending that will take effect when their permanent bailout program begins in July. They can also use leverage to boost that amount toward a level the IMF and U.S. may deem more satisfactory.
“The higher the firewall, the less it will have to be used,” French Finance Minister Francois Baroin said today. Spanish Economy Minister Luis de Guindos, said it “has to be big enough and flexible enough to avoid using it.”
German Finance Minister Wolfgang Schaeuble nevertheless said that no amount of money would compensate for failure by cash-strapped countries to regain control of their debts. “It will not work if the real problems were not solved,” he told the conference.
Speaking to Bloomberg Television in Davos, IMF Managing Director Christine Lagarde listed the firewall alongside growth and better integration as the three areas Europe needed to focus on. She said her organization is already in negotiations with shareholders to raise the IMF’s lending capacity by $500 billion.