26th Oct 2016

US rules out eurozone bail-out, as recession looms

  • No US dollars for the eurozone, says the Fed (Photo: Tracy O)

The US Federal Reserve has no plans to contribute to a bail-out of Europe, but a euro collapse would have devastating effects on the economy, its chief, Ben Bernanke, told Republican senators on Wednesday (14 December) at a closed-door hearing.

Several senators confirmed after the meeting that Bernanke said he did not "have the intention or the authority" to provide support for the euro crisis.

Dear EUobserver reader

Subscribe now for unrestricted access to EUobserver.

Sign up for 30 days' free trial, no obligation. Full subscription only 15 € / month or 150 € / year.

  1. Unlimited access on desktop and mobile
  2. All premium articles, analysis, commentary and investigations
  3. EUobserver archives

EUobserver is the only independent news media covering EU affairs in Brussels and all 28 member states.

♡ We value your support.

If you already have an account click here to login.

Republican senator Bob Corker of Tennessee said that the central banker had offered this assurance "multiple times" during the one-hour meeting.

"I think people walked away knowing he has no intentions whatsoever of furthering US involvement in the crisis," Corker told reporters.

However, Bernanke also warned of the devastating effect a eurozone collapse would have on the US economy.

"He is very concerned. He did say, if they cannot get their fiscal situation under control, it could affect us. A collapse over there would be detrimental to us," senator Orin Hatch from Utah said.

In a statement put out on Tuesday, the Federal Reserve warned of risks to the economy from "strains in global financial markets," - a reference to the eurozone crisis.

High exposure to European banks is one of the main concerns of the Fed, rather than exposure to European governments' debt, Corker said.

In what seemed to confirm the US central bank's fears, Fitch ratings agency on Wednesday downgraded five of Europe's major commercial banks, warning of more troubles ahead. France's Banque Federative du Credit Mutuel and Credit Agricole, Finland's Pohjola Group, Denmark's Danske Bank and the Netherlands' Rabobank all saw their A ratings downgraded by one notch, amid direct or indirect exposure to government debt in troubled eurozone countries.

According to Fitch, questions over how the eurozone crisis will be resolved and austerity measures taken to varying extents by European governments will affect commercial banking negatively, particularly in southern Europe and Ireland.

Meanwhile, France seems to have come to terms with a potential downgrade of its triple-A rating. "It would not be good news, of course, but neither would it be a cataclysm. The US also lost their triple A rating and continue to borrow on the markets in good conditions," French foreign minister Alain Juppe told Les Echos.

In addition to the banking and sovereign debt downgrades, the European economy is heading for a winter recession, according to a latest estimate by audit company Ernst & Young.

A "mild" recession is likely in the first half of next year, leading to economic growth of just 0.1 percent for the whole of 2012, the firm predicted. Ernst & Young also said unemployment in the eurozone was unlikely to fall below 10 percent until 2015.


Europe ready to tackle Greek debt relief

The Greek government has built and broadened alliances in EU institutions and member-states that acknowledge the need to restructure the debt and deliver another economic model for the eurozone.

Stakeholders' Highlights

  1. EFADraft Bill for a 2nd Scottish Independence Referendum
  2. UNICEFCalls on European Council to Address Plight of Refugee and Migrant Children
  3. ECTAJoin us on 9-10 November in Brussels and Discover the new EU Digital Landscape
  4. Access NowCan you Hear me now? Verizon’s Opportunity to Stand for Global Users
  5. Belgrade Security ForumMeaningful Dialogue Missing Not Only in the Balkans, but Throughout Europe
  6. EuropecheEU Fishing Sector Celebrates Sustainably Sourced Seafood in EU Parliament
  7. World VisionWomen and Girls Urge EU Leadership to Help end Gender-based Violence
  8. Dialogue PlatformIs Jihadism Blind Spot of Western Intellectuals ? Wednesday 26 October
  9. Belgrade Security ForumGet the Latest News and Updates on the Belgrade Security Forum @BelSecForum
  10. Crowdsourcing Week EuropeMaster Crowdsourcing, Crowdfunding and Innovation! Conference 21 November - 10% Discount Code CSWEU16
  11. EJCEU Parliament's Roadmap for Relations with Iran a Massive Missed Opportunity
  12. Nordic Council of MinistersFish Skin on Bare Skin: Turning Fish Waste into Sustainable Fashion