30th Mar 2023

US: EU has ‘not very much time’

  • Obama and Geithner (r) say that Europe is not moving fast enough (Photo: Port of Tacoma)

Washington is piling the pressure on Europe - publicly and privately - to act as quickly as possible to move forward with an expected multi-trillion-euro plan to bring an end to the eurozone crisis before it drags the world into a second recession.

US treasury secretary Timothy Geithner said on Monday that the problems in Europe are affecting all markets and that the bloc needs to “get on with it”.

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“They heard the same message from us they heard from everybody else, which is it’s time to move,” he told US broadcaster ABC.

The bloc has “some time, but not very much time,” he continued.

“If you listen carefully to what they said this weekend, not just to us in private, but what they said publicly, they’re foreshadowing now the escalation that’s going to come. And we’d like them to get on with it.”

It is understood that the eurozone is to build a €2 trillion war-chest by leveraging the European Financial Security Fund through the European Central Bank, commit to a massive recapitalisation of banks well involving sums beyond the €2.5 billion previously said to be needed, and accept a 50 percent haircut on Greek sovereign debt.

EU officials privately say that the specificities of the plan are yet to be decided and what has been trailed in the press part of a wider debate about a variety of options on how to leverage the EFSF.

Discussions on a Greek write-down are also too “premature” at this stage, according to one EU official. Also on Monday, the European Commission said that the mission of inspectors from the so-called troika of the EU, ECB and IMF still is not ready to return, although the bloc is “pretty confident” that they will “soon” return to Athens.

Geithner repeatedly in the interview drove home the message that Europe needs to act faster.

“They’re going to have to put a much more powerful financial framework behind this. I really believe that you’re going to see them do that, but we wanted to make sure they do it as quickly as they can and as definitively as they can,” he continued.

“If you do it quickly and forcefully, it's much less expensive and you get growth moving much more quickly than you would have thought,” he said.

"And we'd like to see them take those basic lessons and move more quickly now."

The eurozone crunch “hurts people very directly and very quickly when stock prices fall and the value of their pensions fall,” he said.. “It makes people more tentative. And that’s why it’s so important to us that they move.”

The comments come following Geithner’s stark warning on the weekend that EU dithering is threatening “cascading default, bank runs and catastrophic risk.”

Also on Monday, US President Barack Obama warned that Europe is “scaring the world” with its inaction.

Speaking in California, he said: "What's happening in Europe, they have not fully healed from the crisis back in 2007 and never fully dealt with all the challenges that their banking system faced.”

"So they're going through a financial crisis that is scaring the world, and they're trying to take responsible actions, but those actions haven't been quite as quick as they need to be."

On a lighter note, the White House’s former chief economic advisor, Austan Goolsbee, compared EU leaders actions to Monty Python.

"In Europe, they've kind of turned this into a bad Monty Python skit, where, you know, the guy comes out and says, 'We need to act,' and the next one says, 'You're right, let's draft -- no more talking..., 'I second the motion. Let's start doing something,'" he said.

"I mean, they're not actually doing anything. They just keep agreeing that they're going to work in concert."

Even as the US officials made their comments, Estonia’s chancellor of justice announced that the country’s participation in the EFSF could be unconstitutional.

The justice ombudsman, Indrek Teder, warned in a letter to the parliament’s finance committee, that the move’s "conformity to the constitution is questionable."

He said that the country’s budget act may require amending to allow Estonia to move forward with commitments made by eurozone leaders on 21 July.

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