Geithner Says Europe Has Tools for Difficult Road Ahead

U.S. Treasury Secretary Timothy F. Geithner said Europe is in a better position than it was earlier this year even as it remains the biggest drag on the global economy.

“They’re in a much better position today than they were three months ago, six months ago, nine months ago,” Geithner said today at the Clinton Global Initiative conference in New York. “For the first time, they have in place a plausibly powerful set of financial tools to support a strategy to let these reforms work.”

Europe’s economic outlook is weakening as the region’s policy makers strive to end the three-year debt crisis. Euro-area surveys on Sept. 20 showed that services and manufacturing output fell to a 39-month low in September, adding to evidence the economy is heading for a recession. Figures yesterday indicated that German business confidence unexpectedly fell to the lowest in more than two and a half years in September.

“It’s going to be a long, difficult, tough road for them, and the politics of it are very hard,” Geithner said. “There’s not going to be a week or a specific date in the future where you’re going to know with total confidence how they’re going to navigate it. It’s going to be something that’s tested every month, every week for the next several years.”

Big Uncertainty

Europe is still “the big uncertainty and the biggest source of drag on the global economy,” he said.

On the so-called fiscal cliff in the U.S., Geithner said Republicans in Congress will have to confront “a set of basic realities about economics and fiscal policy.”

The fiscal cliff refers to spending cuts and tax increases scheduled to take effect next year if Congress fails to act by the end of 2012.

European stocks advanced as U.S. home prices and consumer confidence increased more than forecast. The Stoxx Europe 600 Index added 0.4 percent to 275.78 at the close of trading. The gauge has rallied 18 percent from this year’s low on June 4 as European Central Bank policy makers agreed to implement an unlimited bond-buying program and the Federal Reserve unveiled a third round of asset purchases.

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