(Updates with Obama quotes, Geithner testimony starting in second paragraph.)
Oct. 6 (Bloomberg) -- President Barack Obama said the European debt crisis is putting a “severe strain” on the global economy and he wants to see a “concrete” plan for dealing with it when leaders of the Group of 20 nations meet next month.
In a news conference largely devoted to signs of weakness in the U.S. economy and challenges to congressional Republicans to pass his jobs legislation, Obama declared the European crisis “the biggest headwind” to the nation’s recovery.
Obama said he talks regularly with German Chancellor Angela Merkel and French President Nicolas Sarkozy and that European leaders recognize “the urgency of the situation.”
“I’m confident they want to get this done,” Obama said at the White House, though he added that “their politics is tough” since they must persuade “27 parliaments” to act in concert.
Obama has been critical of the response by European governments to the continent’s 18-month sovereign debt crisis, saying it’s been a drag on the U.S. economy. With Greece on the brink of default, investors are growing more concerned about the losses European banks may incur in the event of a sovereign insolvency.
During the news conference, Obama said European governments wouldn’t be able to count on growth in the rest of the world to right their economies in the event of a slowdown.
“Europe is not going to be able to export its way out of this problem,” Obama said.
Obama will meet with leaders of major European nations at the G-20 summit Nov. 3-4 in Cannes, France.
Treasury Secretary Timothy F. Geithner told the Senate Banking and Financial Services Committee today the crisis in Europe poses a “significant risk to global recovery” and it is critical that governments and financial institutions have a “powerful financial backstop.”
“Our direct financial exposure to those governments and their financial institutions is quite small, but Europe is so large and so closely integrated with the U.S. and world economies that a severe crisis in Europe could cause significant damage by undermining confidence and weakening demand,” Geithner said in testimony before committee.
The Standard & Poor’s 500 Index was up 0.9 percent to 1154.43 at 12:47 pm New York time after rallying 4.1 percent over the previous two days as investors dissected the European Central Bank’s plans to tame the sovereign debt crisis.
The ECB will spend 40 billion euros ($53 billion) on covered bonds starting next month and will offer banks two additional unlimited loans of 12 and 13-month durations, bank President Jean-Claude Trichet said at a press conference in Berlin today.
The European Commission is pushing for a coordinated capital injection for banks to shield them from the fallout of a potential Greek default. Merkel said today in Berlin that “we shouldn’t hesitate” to act if European banks need more capital.
Obama said Sept. 26 Europe hasn’t dealt with its banking system and its financial system effectively and the situation there “is scaring the world.”
--With assistance from Roger Runningen, Cheyenne Hopkins and Ian Katz in Washington. Editors: Joe Sobczyk, Bob Drummond
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