US, Europe clash over debt crisis

US Treasury chief Timothy Geithner (L)
and Luxembourg Prime Minister
Jean-Claude Juncker (R)
© AFP/POOL Rafal Klimkiewicz

AFP

WROCLAW, Poland (AFP) – The United States Friday warned Europe of “catastrophic risks” to financial markets from the failure to quickly contain the eurozone debt crisis, in debate over the way forward.

US Treasury Secretary Timothy Geithner and German Finance Minister Wolfgang Schaeuble disagreed sharply, with an American call to boost rescue funding running headlong into a European demand for Washington to tax financial transactions.

“We are not discussing the increase or the expansion of the EFSF (European Financial Stability Facility) with a non-member of the euro area,” eurozone chief Jean-Claude Juncker said at a meeting of the 17-nation currency club’s finance ministers and central bankers.

On the sidelines of the talks, Geithner urged eurozone leaders to bolster the rescue fund, but saw that demand instantly rebuffed by Germany — which demanded Washington drop its opposition to a global financial transactions tax, “emphatically” resisted by Geithner.

Austria’s Finance Minister Maria Fekter said Geithner urged Europe to increase the size of its 440-billion-euro ($607 billion) EFSF for troubled member states and take more action to shore up the financial and banking sector.

But Schaeuble insisted that taxpayers alone could not bear the burden, leaving the two sides at odds.

“What’s very damaging is not just seeing the divisiveness in the debate over strategy in Europe but the ongoing conflict between countries and the [European] Central Bank,” Geithner said on the sidelines of the talks in Wroclaw, southwest Poland.

“Governments and central banks need to take out the catastrophic risk to markets,” he said after the non-euro hosts took the rare step of inviting him to attend — ahead of other non-euro EU states like Britain.

Later Friday the US Treasury issued a statement in Washington, downplaying reports of tension at the meeting between Geithner and Schaeuble.

“Secretary Geithner encouraged his European counterparts to act decisively and to speak with one voice. He did not advocate or oppose any specific policy prescriptions,” the statement said.

The EU is under pressure to end months of
bickering over a second financial rescue for
near-bankrupt Greece
AFP Phillipe Wojazer

Geithner’s calls came after eurozone, US, Japanese, Swiss and British central banks took markets by surprise Thursday in announcing they will provide dollars to commercial banks threatened by exposure to the eurozone’s debt mountain.

Banks, particularly in Europe and France, have been starved of their normal sources of finance, scared off by prospects that eurozone debt contagion could hit the financial sector.

Emerging economies have indicated they will hold talks next week on possibly buying debt issued by weak eurozone countries.

Earlier eurozone nations decided to postpone a decision on the next tranche of Greek rescue funding worth eight billion euros ($11.0 billion) until October.

Juncker reiterated that “full implementation” by Athens of austerity and modernisation commitments was crucial, and Greek Finance Minister Evangelos Venizelos insisted his country was “on track.”

Greek officials have warned they will run out of funds to pay pensions and state salaries in October.

A second Greek bailout has also been mired in rows with Finland over its demand for collateral for bailout loan guarantees, and with Slovakia which has threatened to delay parliamentary ratification.

European Central Bank chief Jean-Claude Trichet said that, overall, the “problem is not words, the problem is deeds.”

On the collateral issue, unhappy partners ganged up on Finland to say it would have to accept a lesser return on loans if it demanded up-front protection.

Europe needs Finland to ratify new powers for the EFSF in a hurry, but a spokesman for the Helsinki government said it wasn’t giving up its demand for collateral.

“Everyone is tired of this, everyone is mixing the problems of Greece and the EFSF,” said Estonia’s Finance Minister Jurgen Ligi, whose country adopted the currency in January and enjoys the EU’s lowest debt and regular budget surpluses.

Under questioning by reporters in Wroclaw, Austria’s Fekter appeared to suggest that default for Greece could eventually prove to be the least costly outcome.

“Should there be a situation, that (the present bailout approach) suddenly becomes more expensive than an alternative, we do have to think about this alternative,” she said.

Polish Finance Minister Jacek Rostowski later announced the EU was on the cusp of adopting a “six-pack” of laws that will at long last sanction states that break existing budget rules.