Geithner Tells Europeans to Work Together on Debt Crisis

The Continent’s financial woes grabbed the attention of the policy-setting committees of the 187-nation International Monetary Fund and the World Bank during the lending institutions’ annual meetings.

Treasury Secretary Timothy F. Geithner told the I.M.F. panel that the debt crisis posed the most serious threat to the global economy and that failure to take bold action raised the risk of domino-style defaults by heavily indebted European countries.

He said the European Central Bank should try to ensure that governments pursuing sound reforms could get loans at affordable rates and that European banks have access to the capital they need to operate. The European Central Bank is the central bank for the 17 nations that use the euro as a common currency.

Global financial markets plunged last week on fears of a possible default within weeks by Greece and on worries that a default would cause runs on major European banks with heavy exposure to Athens’s debt.

“The threat of cascading default, bank runs and catastrophic risk must be taken off the table. Otherwise, it will undermine all other efforts, both within Europe and globally,” Mr. Geithner said. “Decisions as to how to conclusively address the region’s problems cannot wait until the crisis gets even more severe.”

Mr. Geithner was one of a number of finance leaders demanding forceful action.

Mark Carney, head of Canada’s central bank, called for “overwhelming” the problem with a big increase in Europe’s rescue fund for indebted countries.

In an interview with CBC radio, Mr. Carney suggested that a European financial stability fund should be increased to 1 trillion euros from the current 440 billion euros. At current exchange rates, that would be the equivalent of expanding a $590 billion fund to $1.35 trillion. “You need a big pot of money,” he said.

For Christine Lagarde, the I.M.F. chief, the debt crisis was a tough first test. Ms. Lagarde has warned that without strong and collective action, the world’s major economies risk slipping back into recession.

To avoid that, officials of the Group of 20 pledged on Thursday to “take all necessary actions to preserve the stability of banking systems and financial markets.”

Article source: http://www.nytimes.com/2011/09/25/business/geithner-tells-europe-it-must-work-together-on-debt-crisis.html?partner=rss&emc=rss