April 1, 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.

Article source: http://www.nytimes.com/2012/01/27/business/lael-brainard-is-washingtons-financial-envoy-to-euro-crisis.html?partner=rss&emc=rss

Italy Borrowing Costs Hit 3-Year High in Bond Sale

LONDON — Italy managed to sell five-year bonds in an auction on Thursday but yields were at the highest level in three years, showing that some investors remained nervous about the sovereign debt crisis spreading across Europe.

The sale came just ahead of an informal meeting in Rome by officials from the European Central Bank, the European Commission and private lenders to discuss a second rescue plan for Greece.

Worries among some investors that the slow pace of European leaders in coming up with a solution for Greece’s ballooning debt has pushed up borrowing costs in recent days for other European economies, especially Italy and Spain.

Earlier doubts about whether the Italian prime minister, Silvio Berlusconi, and the finance minister, Giulio Tremonti, would agree on new austerity measures added to the uncertainty.

On Thursday, the Italian Treasury said it priced €1.25 billion, or $1.8 billion, of five-year bonds, the maximum it had earmarked for the sale, with a gross yield of 4.93 percent, up from 3.9 percent at a previous auction in June. It also sold a combined €3.7 billion of bonds with maturities of up to 15 years.

With Italy able to place the bonds, even though at a higher cost, some analysts said the focus is shifting back to whether European policy makers would be able to agree on a Greek bailout.

“The Italians got away with what they intended to do and it did initially help to stabilize the markets,” said Eric Wand a fixed-income strategist at Lloyds Bank Corporate Markets in London. “But the situation now is reverting back to European politics — and as politicians don’t seem to be in a desperate rush to get something out, the markets is starting to really get nervous.”

The Institute of International Finance, which represents finacial services companies, said that Charles Dallara, its managing director, had arrived in Rome Thursday for discussions with Vittorio Grilli, an Italian Treasury official who is also the chairman of a high-level European committee on economic policy.

An Italian Treasury official, speaking on customary condition of anonymity, said the meeting would focus on the involvement of private investors, such as banks and insurance companies, in a new Greek package and will give officials the chance to exchange opinions. No statement was expected after the meeting, the official said.

An I.I.F. spokesman, Frank Vogl, said the talks represented a chance for the I.I.F. to update European governments on the status of recent, intense negotiations among Greece’s main creditors about the scale and method of the private sector’s involvement in the next bailout. The talks would be focused solely on Greece and not any other euro zone country, he added.

European leaders on Wednesday put off a proposed summit meeting until next week to give themselves more time to settle disagreements over how to get private investors to share the pain in any future Greek bailout. Chancellor Angela Merkel of Germany argued that a package of necessary measures was not yet ready.

Greece’s credit rating was cut three levels to CCC by Fitch Ratings late Wednesday. The ratings agency cited uncertainties about a Greek rescue and the role of private lenders in such a rescue.

Italy is expected to push through a four-year austerity plan and win support for the measures from opposition parties this week.

The Italian deficit as a share of gross domestic product was less than half of that of Greece last year. But as investors become increasingly nervous about the possibility of containing Greece’s debt problems, borrowing costs for Italy have increased.

Matthew Saltmarsh contributed reporting. Gaia Pianigiani contributed reporting from Rome.

Article source: http://feeds.nytimes.com/click.phdo?i=59c75d147356f9ca3851f69dc351b4dc