Bloomberg News

Obama Says EU Lays ‘Critical Foundation’ to Solve Crisis

October 27, 2011

(Updates markets, adds comments beginning in fourth paragraph.)

Oct. 27 (Bloomberg) -- President Barack Obama said he welcomes the debt deal assembled by European leaders, describing it as laying a “critical foundation” for averting a global economic slump.

“We look forward to the full development and rapid implementation of their plan,” Obama said in a statement issued by the White House. “We will continue to support the EU and our European allies in their efforts to address this crisis.”

Obama and Treasury Secretary Timothy F. Geithner had urged Europe to do more to stem the two-year-old sovereign-debt crisis that began in Greece and threatens larger economies on the continent, such as Italy, Europe’s third-largest.

Stocks surged, extending the biggest monthly rally in U.S. equities since 1974, and the euro gained. The Standard & Poor’s 500 Index rallied 3.3 percent at 2:19 p.m. in New York, with a year-to-date gain of 2 percent, erasing its 2011 losses.

White House press secretary Jay Carney said at a later briefing that Europe’s ability to resolve the situation has “very important impacts on the American economy.”

Obama will continue conferring with European leaders as they move forward with the plan, Carney said. The U.S. president will be meeting with German Chancellor Angela Merkel and French President Nicolas Sarkozy when the Group of 20 nations holds a scheduled summit in Cannes, France, on Nov. 3-4.

EU Plan

France and Germany led efforts resulting in an accord that boosts a rescue fund to 1 trillion euros ($1.4 trillion) and persuading bondholders to take a 50 percent loss on their investments. The package also includes a recapitalization of European banks and a potentially bigger role for the International Monetary Fund in strengthening the bailout fund.

‘The announcement itself makes clear that European countries are willing to put taxpayer money and risk and take losses if needed to avoid a financial meltdown,’’ Phillip Swagel, assistant U.S. Treasury secretary for economic policy in the George W. Bush administration, said in an e-mail. “This signal of political will is what was missing and is why this statement looks to go beyond previous European promises.”

Even so, the deal may generate only limited relief for stressed sovereigns unless it can be fleshed-out within weeks.

‘Short on Details’

“It remains a deal long on intentions and short on details,” said Jens Larsen, chief European economist at RBC Capital Markets in London. “Until we know how the mechanisms will work, it will be hard to judge whether this will be sufficient to entice investors to provide support to European governments.”

Obama has pointed to his jobs program as part of the U.S. share in doing its part to boost the domestic and global economies. Congress, where Republicans control the House and have enough Senate votes to bottle up Obama’s proposals, has rejected most overtures.

“There is no question that enough has not been done,” Carney said, though the 2009 stimulus program “prevented a second Great Depression.”

A Commerce Department report released today showing the economy grew at a 2.5 percent annual rate in the third quarter, the fastest pace in a year, is a sign of progress for the U.S., “but it is not good enough by a long shot,” he said.

--With assistance from James G. Neuger in Brussels and Simon Kennedy in Paris. Editors: Bob Drummond, Joe Sobczyk

To contact the reporter on this story: Roger Runningen in Washington at rrunningen@bloomberg.net

To contact the editor responsible for this story: Mark Silva at msilva34@bloomberg.net


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