–Confident EU Authorities Will Move To Expand Financial Capacity
–‘There Is A Lot Of Strength In The Global Economy’
–Obama Jobs Package Would Provide Protection From EU Crisis

By Brai Odion-Esene

WASHINGTON (MNI) – U.S. Treasury Secretary Timothy Geithner
Thursday declared his confidence that European leaders will
substantially bolster measures set up to tackle their sovereign debt
woes, with the key being to do so without running into political
opposition.

In an appearance at the National Journal’s America in the Global
Economy Summit, Geithner predicted that EU authorities will act with
more force in the coming weeks and months, especially with regards to
the European Financial Stability Facility.

“I am very confident that they are going to move in the direction
of expanding the effective financial capacity of that set of financial
arrangements because they have no alternative to doing that,” he said.

“They are just trying to figure how to get there in a way that is
as politically attractive as possible,” he added.

In a wide-ranging discussion on many issues facing the global
economy, Geithner said the world is still healing from the financial
crisis, and while the shock felt from the sharp rise in oil prices and
the Japan earthquake is beginning to fade, two clouds “are still with
us.”

“The two other clouds still over us are the European crisis and the
deep concern you can see across the world, and around the country, about
whether the political system in the United States is up to the
challenges we face,” he said.

These include not just the near-term task of supporting a
still-healing economy, Geithner added, but also long-term challenges of
growth, competitiveness and fiscal sustainability.

He noted statements by leaders such as France’s Nicolas Sarkozy and
Germany’s Angela Merkel on the future of the eurozone, in which they
promised to do what is necessary “to hold this together.”

“What they need to do is make sure they have a financial capacity
that is effective enough, substantial enough, to underscore and deliver
on that committment,” Geithner said.

With that, EU authorities would be better prepared to deal with the
challenge they face, “which is years and years of difficult, financial
pressure on those governments that were living way beyond their means
for a long period of time and have terrible growth prospects,” he said.

This broader firewall must be in place to ensure Europe is
protracted from that “inevitable” set of pressures, the Treasury
secretary added.

The turmoil in Europe has had a very negative impact on confidence,
Geithner said, especially in a world still scarred by the 2008-2009
financial crisis.

In fact, the EU crisis’ effect on U.S. confidence has been much
greater than its direct impact on growth, he argued. “So better for us
if Europe is growing more rapidly, but much more important for us is
that Europe puts in place a better financial foundation.”

He said the determination by Europe’s leaders to avoid the Greece
situation going the way of Lehman Brothers is recognition of the fact
that “if you let the momentum of these concerns build, they are very
hard to arrest.”

Geithner said the eurozone’s ongoing woes “are much bigger than
Greece,” and reiterated that the U.S. has a big and direct stake in the
crisis being resolved.

“Not just through the dollar-funding — that the Fed’s providing
them — and through the IMF, but of course we have a huge strategic
interest too,” he said. “We don’t want to see Europe weakened by a
protracted financial crisis,” he continued, “so we have a strong
interest in helping them through this.”

There have been some indications in the U.S. Senate recently that
there is resistance to providing more funds to the IMF, but Geithner
noted that it already “has a very, very substantial, uncommitted
financial capacity to help do what it exists to do.”

The IMF has more than $350 billion of available lending capacity,
he said, and the U.S. will be very supportive of its actions to help
Europe given the importance of containing the debt crisis.

As for the United States, it is still the largest economy in the
world, Geithner said, and it is important for the U.S. to grow and be a
source of financial soundness.

The stand-off over the raising the debt limit caused “lasting”
damage, and the Obama administration — together with lawmakers — must
work very hard to heal that damage, he said.

The IMF Tuesday issued a very downbeat forecast for global economic
growth for this year and 2012, but Geithner said IMF projections “are
always gloomy.”

He said most business economists estimate the U.S. economy is
currently growing at a rate of 2%, he believes is too slow. If Congress
passed President Obama’s $447 billion jobs package, Geithner argued,
that would add between one to two percentage points to growth.

That would provide the country with protection from the ongoing
problems in Europe and allow the U.S. to emerge more rapidly from the
recent meltdown in the financial markets, Geithner added.

The United States, he said, must “definitively” heal the damage
caused by the crisis.

Geithner also said he does not believe the current slow pace of the
economic growth — coupled with the slow pace of job creation — is the
“new normal,” arguing that with sensible policies the country and return
to the high growth, low unemployment heydays of the nineties.

One of the key causes behind this slow growth, the housing market,
remains “very weak, very damaged,” Geithner said, a reflection of the
high unemployment rate. He added that it will take several years to
heal, and that what will ultimately boost the housing market is an
economy that grows more rapidly.

And as the government reforms the housing finance market, and winds
down mortgage giants Fannie Mae and Freddie Mac, Geithner said the goal
is not to add to the ongoing pressures in the market. “It would be
irresponsible to do otherwise,” he said.

Asked to comment yet again on the progress of corporate tax reform,
Geithner said the Treasury has developed a very detailed set of
proposals and is now in the process of consulting with the tax writing
committees on Capitol Hill.

“We are going to be guided by what’s the best way to get something
done on sensible terms,” he said. While the aim is not to have tax
reform passed in the next two months, Geithner said it is not
unrealistic to set out broad parameters in order to have a foundation
for negotiations.

On the world economy, Geithner insisted that “there is a lot of
strength in the global economy.”

While growth in advanced economies is moving at a slow pace, major
emerging economies are growing very rapidly — a boon for U.S. exports,
he added. The demand for U.S. goods by emerging economies is why,
outside of housing and construction, the U.S. economy “has been pretty
strong and pretty resilient.”

Governments should recognize that growth is weaker, Geithner said,
and governments should be adapting their fiscal and monetary policies to
address that new reality. “They should be erring on the side of doing
more things to help growth more generally.”

Geithner cautioned about the harm fiscal retrenchment can have on
the economy, saying the administration’s deficit reduction proposals
reduce the risk that the government is “actively hurting” growth by
contracting much too quickly.

Some countries will have to move quickly on fiscal austerity, he
acknowledged, as they have no alternative, but many of the major
economies have room to proceed more gradually.

The Group of 20 finance ministers meet in Washington Thursday and
the IMF annual meetings take over the weekend. Over the past one, the
topic that has dominated discussions at these gatherings, aside from the
European crisis, is foreign exchange policy.

Asked to comment on promises from lawmakers of more stringent rules
to be aimed at China due to its fixed exchange rate policy, Geithner
said the U.S. has a strong interest in the yuan’s continued appreciation
in value.

“We’d like them to move faster, they’ve got a ways to go,” he said.

The administration also has a broad range of concerns about China’s
overall trade policy, he added, and is actively working to convince
China to move more aggressively to meet U.S. concerns. “We will use any
tool we think helps advance that objective,” Geithner promised.

** Market News International Washington Bureau: 202-371-2121 **

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