U.S. Treasury Secretary Timothy F. Geithner said that while Europe has assuaged financial tensions, it faces a “long and difficult path of reform.”
“For these economic reforms to work, policy makers in the euro area will have to be careful to calibrate the mix of financial support and the pace of fiscal consolidation,” Geithner said in remarks prepared for delivery tomorrow to the House Financial Services Committee and posted on the panel’s website. “The reforms will take time and they will not work without financial support that enables governments to borrow at affordable rates and keeps the overall rates of interest across the economy at levels that won’t kill growth.”
While Europe is facing its second recession in less than three years, the European Central Bank has helped ease concern in the markets and won governments time to agree on measures to contain the debt crisis by pumping cash into the economy. In a second operation in February, 800 financial institutions received 529.5 billion euros ($701 billion) in loans from the ECB compared with 489 billion euros in loans provided to more than 500 banks in December.
“The most important unfinished piece of the broader financial strategy is to build a stronger European firewall to provide a backstop for the governments undertaking reforms,” Geithner said.
The International Monetary Fund on March 15 approved a 28- billion-euro loan for Greece as part of a second bailout led by euro-area governments that requires more austerity and an overhaul of its economy.
“The IMF has substantial financial resources available today, and it has the ability, as it has demonstrated in the past, to mobilize temporary resources if that were necessary to help contain the damage from a further intensification of the crisis in Europe,” Geithner said. “For these reasons, we have no intention to seek additional U.S. resources for the IMF.”
Geithner said that “economic growth is likely to be weak for some time” in Europe and that the “path of fiscal consolidation should be gradual with a multiyear phase-in of reforms.”
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