March 22, 2023

Lael Brainard Is Washington’s Financial Envoy to Euro Crisis

Every nation’s rebound is at risk, including that of the United States — a particular concern for President Obama, who wants to trumpet the country’s renewed strength during his re-election campaign.

Lael Brainard, America’s top financial diplomat, landed Thursday in Switzerland to help coax the European negotiations along. As the Treasury under secretary for international affairs, she has the urgent task of helping to persuade the Europeans to head off a financial crisis by building a firewall to quiet the markets once and for all — and doing so without any formal role in their negotiations. It is at times an awkward role, but the stakes are enormous, not just for the United States but for preservation of the euro zone and its currency.

Ms. Brainard, 49, operates mostly behind the scenes, in private phone calls and discreet visits — 17 trips to Europe alone in the last two years.

“They trust her, they reach out to her, they talk to her for ideas and to get us to engage,” said Timothy F. Geithner, the Treasury secretary, who is also in Davos this week.

When Greece began unsettling markets late in 2009, Ms. Brainard started raising concerns that it could turn into a Continentwide issue. Since then, Ms. Brainard’s task has been navigating the convoluted world of European politics, where at times it seems every small party from Slovakia to Portugal has a say in major decisions.

Many European policy makers bristle at America inserting itself into local politics. And many blame its fiscal laxity and subprime mortgages for starting the global crisis in the first place.

“She forgets sometimes that when she points a finger at Europe, three fingers are pointing back at her,” one German finance ministry official said, speaking on the condition of anonymity to avoid hurting relations.

Ms. Brainard acknowledged the delicacy of the situation in an interview in her high-ceilinged, gold-leafed office overlooking the White House.

“Based on our own experience with TARP, we have a very good sense of the political difficulty associated with these things,” she said, a reference to the Troubled Asset Relief Program, Washington’s bank bailout program. “But we continue to urge action because it’s just too important not to.”

Treasury officials explained that European leaders wanted them there, both to advise on the best ways to quiet financial markets and to help arbitrate the frequent internecine clashes among the euro zone countries.

But she has also twisted arms when necessary, developing a reputation as a calm but extraordinarily persistent negotiator.

In recent weeks, talks have centered on how the International Monetary Fund might assist in resolving the euro crisis. Many European politicians want the fund to marshal financing from cash-rich countries like China and Brazil to help in Europe. The United States, acting as a proxy for several of those cash-rich emerging countries, wants Europe to add billions of its own money to its bailout funds first.

Ms. Brainard and Mr. Geithner delivered that message — in person, behind closed doors, days before a European summit meeting on strict new fiscal rules last month. It did not necessarily go over well. Washington was “not helpful in reinforcing I.M.F. resources,” a French official said. “It discourages others from doing the same.”

But last week, the International Monetary Fund announced that it would seek to raise up to $500 billion in new lending capacity, about half from countries in the European Union and half from elsewhere. This week, it started formally calling for Europe to expand its own firewall in concert, as American officials had urged for months. An official with knowledge of the talks, who spoke on condition of anonymity to avoid disturbing them, said Europe might add 250 billion euros of capacity to its permanent and temporary bailout funds, lifting their lending capacity to more than $1 trillion.

Steven Erlanger and Liz Alderman in Paris and Nicholas Kulish in Berlin contributed reporting.

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