Eurozone countries are committed to holding the currency union together and the region's politicians are actively formulating near term and long term policies to address the sovereign debt crisis, said US Treasury secretary Timothy Geithner.
Eurozone countries are committed to holding the currency union together and the region’s politicians are actively formulating near term and long term policies to address the sovereign debt crisis, said US Treasury secretary Timothy Geithner.
In an interview with Bloomberg Television, Geithner (pictured), who has just returned to the US after a meeting German finance minister Wolfgang Schaeuble and ECB governor Mario Draghi, said Europe “is committed to doing what’s necessary to hold the European Union together”.
“To make that work, they need to not just make sure they’re doing reforms to make those economies more competitive, they need to build a stronger set of institutions on budget disciplines and better management of banking systems.”
“But they also have to do some more things to help support growth in the near term. And that means bringing down interest rates in the countries that are reforming and making sure those banking systems can provide the credit those economies need. So they’re trying to work on a strategy, a comprehensive strategy with those elements, and they recognize that they’ve got some more work to do to try to restore confidence in their commitment to do that.”
Geithner said Europe needed the “means and the ability” to overcome the crisis, “and I absolutely believe they have the means to do it…it’s not fair to say they haven’t been acting. I think over the course of the last two and a half years, they’ve done a lot of things trying to build a stronger, more viable European Union.”
“Of course, they recognize they have more work to do… And so a big challenge they face right now is to figure out how they put in place a stronger bridge to those longer term reforms, because, again, without growth, they’re going to find a political basis for reform erode beneath their feet.”
Geithner said he had also warned officials that delaying a resolution was not risk-free as the political and economic costs grow with the delays. “I believe they understand that, and that’s why they signalled that they are prepared to move further now…They’re going to be living with this for some period of time. And they’re trying to make sure that they’re not just building for the long run but they provide a bridge for those long term reforms.
For the US, the ongoing European crisis was a real concern, given the fragility of the US economy. Geithner described the “huge stakes relative to the global economy”.
“Europe has roughly one third of the global economy. I think we all have a huge strategic interest in Europe being stronger, not weakened by a long protracted crisis. Of course, the human costs are acute in this crisis even already, not just in Greece, but throughout other countries in Europe. And the political costs in terms of rising extremism are terribly troubling.”
Asked what he considered the bigger risk – the “fiscal cliff” faced by the US, or the situation in Europe, Geithner said they were “fundamentally different” situations.
“The European crisis is a much more grave risk to the global economy and our own economy. What people call a fiscal cliff is something completely within our control, it’s a political challenge, not an economic challenge, and there are many different ways we can manage through that if we can get people to embrace a balanced program of fiscal reform.”