WASHINGTON (Reuters) - Treasury Secretary Timothy Geithner on Wednesday urged European leaders to act more forcefully to solve Europe’s escalating debt crisis and said they have the financial and economic capacity to do so.
“They recognize that they have been behind the curve. They recognize that it will take more force behind their commitments,” Geithner told CNBC television two days before he is set to make an unprecedented appearance at a EU finance ministers meeting.
Frustrated with Greece’s failure to meet fiscal goals set as a condition for a bailout, leaders of France and Germany were due on Wednesday to press Greek Prime Minister George Papandreou to enforce the harsh austerity measures.
Moody’s said it downgraded the credit rating of Societe Generale by one notch because it no longer saw the bank getting additional “systemic support” over its peers, while Credit Agricole was downgraded due to continuing concerns about its Greek exposure.
Geithner tried to shore up confidence in Europe’s ability to resolve its crisis and safeguard a banking system laden with poorly performing sovereign bonds.
“There is no chance that the major countries of Europe will let their institutions be at risk in the eyes of the market. There is not a chance,” he said.
The Obama administration has grown increasingly frustrated with European leaders for failing to tackle a problem that is hurting the United States’ own recovery and could dim President Barack Obama’s reelection prospects next year.
In a clear hardening of tone, Obama voiced skepticism about the currency zone’s prospects while it lacked a common fiscal policy. He said flat-out that he did not believe measures taken so far to save Greece were working.
“You have a single currency, but you don’t have a single set of economic policies, and that’s created great difficulty,” Obama told Spanish-language reporters on Monday. “Greece is obviously the biggest immediate problem, and they’ve taken some steps to slow the crisis, but not solve the crisis,” he said.
German Chancellor Angela Merkel on Tuesday tried to squash talk that Greece would default on its obligations and sink the 17-nation euro zone currency area, a message Geithner tried to amplify.
“They are absolutely committed and they have the financial capacity, the economic capacity to do what it takes to hold this thing together,” he said. As head of the New York Federal Reserve Bank at the height of the 2007-09 financial crisis, Geithner helped craft a plan to prop up major Wall Street banks and stabilize the financial system.
Geithner is attending an informal meeting of EU finance ministers in Poland on Friday, where he is expected to urge the ministers to speed up the ratification of changes to their bailout fund.
“To solve a financial crisis, you need reforms that fix your financial system, in (Greece‘s) case shrink their government and make growth better over time,” he said.
“It takes time and it does not work unless it’s supported with money. There’s just no way it works -- you can’t expect anything to happen without giving them the capacity, the breathing space to be able to borrow.”
The head of the European Commission has announced that it will soon present options for issuing a common euro zone bond, although it is likely to run into legal and political challenges in Germany.
(Reporting by David Lawder, Lisa Lambert, Alister Bull and Rachelle Younglai; Editing by James Dalgleish, Dan Grebler and Andrew Hay)
Corrects to make clear that Moody's downgrade of Societe Generale was not due to its exposure to Greece