EU finance chiefs cool on Geithner plan for eurozone

19.09.11 @ 09:09

  1. By Leigh Phillips

A unprecedented visit by US treasury secretary Timothy Geithner to a meeting of European finance ministers in Poland was coolly received by the gathered European economy chiefs, while the meeting itself saw little advance made on how the eurozone can deal with its ever-deteriorating debt crisis.

  • Geithner and Obama: Washington is worried that EU leaders have failed to tame the eurozone debt crisis (Photo: UK gov)

In a sign of Washington’s growing alarm at the inability of EU leaders to tame the situation, Geithner on Friday pressed the bloc to ratchet up its fire-fighting power by leveraging the eurozone’s €440 billion rescue fund.

While the American did not offer a complete prescription to the European finance ministers gathered in Wroclaw Poland, Geithner did recommend that the rescue fund, the European Financial Stability Facility, be used as credit protection against the European Central Bank hoovering up eurozone government bonds.

The move, similar to action taken by the US under its Term Asset-Backed Securities Loan Facility in 2008, would in principle calm market concerns that Europe’s bail-out fund is not large enough to aid Italy and Spain. Canada has reportedly made an equivalent suggestion to the Europeans.

Washington is also pressing the bloc to deploy some form of stimulus to kick-start the European economy again.

However, a number of EU ministers felt that Geithner had over-stepped his bounds. The Austrian and Swedish finance chiefs offered reporters particularly sharp words about the intrusion from across the Atlantic.

"He conveyed dramatically that we need to commit money to avoid bringing the system into difficulty," Austrian finance minister Maria Fekter said of the discussion.

She took issue with Washington’s rejection of European proposals for a financial transaction tax as one source of cash to deal with the crisis.

"I found it peculiar that the Americans, although they themselves have significantly worse fundamental data than the euro area, explain to us what we should do and when we make a proposal ... they say no right away."

Sweden’s Anders Borg too argued that Washington has problems of its own to deal with.

"Geithner is right that we need to make progress, but it’s quite clear the US has a big debt problem and the situation would be better if the US could show a sustainable way forward," he said, according to a report from Bloomberg.

The head of Germany’s central bank, Jens Weidmann immediately shot down the US plan. "The EFSF’s sole purpose is the financing of states and that’s in order as long as it’s done via the capital market," he said.

"If it’s done via the central bank it constitutes monetary state financing."

German finance minister Wolfgang Schaeuble echoed his compatriot’s words: "We don't think that real economic and social problems can be solved by means of monetary policy," he said.

"That has never been the European model and it won't be."

Jean-Claude Juncker, the head of the eurogroup of states - countries that use the single currency, also rebuffed Geithner’s suggestions.

"We are not discussing the expansion or increase of the EFSF with a non-member of the euro area," he said, adding that fiscal stimulus is not on the cards.

"Fiscal consolidation remains a top priority for the euro area," he said.

Nevertheless, a scheme to leverage the EFSF was in the end neither embraced nor rejected, according to officials.

The broader meeting concluded on Saturday, with the EU ministers offering no fresh announcements on crisis containment, even as Greece gallops towards an expected default in mid-October.

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