Former Treasury Secretary Henry Paulson said the U.S. will emerge relatively unharmed from the debt crisis in Europe as efforts by Greece, Spain and other nations to stabilize their economies persist for the long-term.
“Although Europe is a drag, the U.S. will continue to muddle along with growth that really isn’t enough to make a dent in employment,” Paulson, who was Treasury secretary from July 2006 through January 2009, said at a biotechnology industry conference in Boston today. Europe will eventually stabilize and avoid a “catastrophic outcome,” he said.
U.S. President Barack Obama and German Chancellor Angela Merkel are among world leaders meeting in Mexico this week to attempt to fix the European debt crisis that’s threatening to plunge the global economy back into recession. They gathered after Spain’s borrowing costs soared to a euro-era record and elections in Greece failed to damp the threat of contagion.
“It’s hard for people over here to understand how committed the Europeans are to the monetary union,” Paulson told executives during the Biotechnology Industry Organization conference. “The monetary union isn’t sustainable unless you forge something that is more like a political union. That’s much more different. You’ve got 17 different countries over there.”
Under the best circumstances, “this will drag on over time,” he said.
Paulson, a former chairman and chief executive officer of Goldman Sachs Group Inc., was joined at the conference by former Treasury Secretary Robert Rubin. They discussed the U.S. financial crisis, with Paulson saying government was more to blame than the banks. Government policies encourage people to save too little and borrow too much, he said.
“From the beginning of time, we’ve had financial crises,” said Paulson, who is now chairman of the Paulson Institute at the University of Chicago. “People always blame the banks and for good reason. When you look for the root causes, they’re almost always failed government policies.”
More regulation is not the answer, he said.
“If you ever have to rely on regulation to save us that won’t be enough because unless you think the banks are trying to blow themselves up you’re never going to uncover all the problems in advance,” Paulson said.
Paulson left New York-based Goldman in 2006 to serve as Treasury secretary and held that position during the majority of the U.S. recession that began in December 2007 and ended in June 2009. He said he has faith in current Treasury Secretary Timothy F. Geithner and Federal Reserve Chairman Ben S. Bernanke. His pessimism in the short term stems from politics.
The main policy lawmakers can change that would make a significant difference is the tax structure, he said. Paulson said he is against the current debate in Congress where Republicans have refused to raise any taxes and Democrats have advocated for increasing taxes on the rich only.
Instead, corporate loopholes should be eliminated and businesses should all be on a level playing field, he said.
“I would like to do away with the preferences,” Paulson said. “Politically, I think it’s very difficult to get done.”