The Treasury Department’s top international official reiterated that the U.S. would not be contributing additional funds to the International Monetary Fund to help solve the European debt crisis.
“The challenge Europe faces is within the capacity of the Europeans to manage, and the administration has been clear with our international partners that we are not seeking additional funding for the IMF,” Lael Brainard, the Treasury’s undersecretary for international affairs, said in prepared remarks to the Senate Banking Committee today.
Brainard said that deterioration in Europe could have “a material adverse impact” on the U.S. financial system.
Europe’s creditor countries have been pressuring Greek policy makers ahead of a March 20 bond redemption, when the country has to make a 14.5 billion-euro ($18.9 billion) payment. Lender nations are concerned Greece has neither the will nor the ability to put its finances on a sound footing should it receive a 130 billion-euro aid package.
“We believe Europe has the will and the capacity to manage these challenges effectively,” Brainard said. “Nonetheless, if the euro area were to experience a deterioration of financial conditions, this could pose important risks to our recovery.”
Brainard praised Italian Prime Minister Mario Monti for “laying the groundwork for a more dynamic economy” and Spanish President Mariano Rajoy for addressing Spain’s vulnerabilities with a “historic restructuring of its financial sector.”
The U.S., as the IMF’s largest shareholder, has a “very unique ability to influence policies and reforms that are being undertaken,” in euro countries that have sought an IMF loan, Brainard said.
Still, the U.S. considers the Washington-based IMF has enough resources at the moment, she said.
The IMF is seeking $500 billion in additional lending power. With the U.S. not planning to contribute and euro-region nations having pledged 150 billion euros ($196 billion), IMF Managing Director Christine Lagarde has turned to emerging markets from China to Saudi Arabia to fill the gap.
In January, eight Republican lawmakers sent Treasury Secretary Timothy F. Geithner a letter to oppose ”American taxpayer dollars being used to bail out Europe and for Treasury to confirm that it will not give additional funds to the IMF for Europe. Republican Senator Bob Corker of Tennessee said at the hearing that he appreciates the stance Treasury has taken in not seeking additional funds for the IMF.
”The way you’ve handled the IMF has caused them to have to focus on Europe solving Europe a little more,” Corker said.