U.S. Treasury Secretary Timothy F. Geithner predicted that European governments will step up their response to their region’s debt crisis after a chiding from counterparts around the world.
Geithner’s remarks maintain pressure on Europe ahead of finance minister and central bank gatherings next week and a decision on whether to disburse a loan Greece may need to avoid default. Speculation that rescue efforts will be strengthened spurred a rally in stocks even after Dutch and Finnish officials said they won’t boost commitments to a euro-area bailout fund.
The MSCI Asia Pacific index of stocks gained 2.9 percent as of 11:48 a.m. Tokyo time, after national benchmark indexes rallied yesterday in all 18 western European markets except Greece and Norway. Futures contracts on the U.S. Standard & Poor’s 500 Index advanced 0.3 percent. The euro headed for a third session of gains, up 0.2 percent at $1.3554.
Euro-region finance chiefs committed at a gathering of the Group of 20 in Washington Sept. 22 to boost the flexibility of their rescue fund and “maximize its impact” by the time of the next G-20 conclave. Euro-area finance ministers meet Oct. 3. European Central Bank officials have indicated they will consider expanding liquidity provisions when they meet Oct. 6.
Geithner set the tone at the annual meeting of the International Monetary Fund and World Bank by warning that failure to combat the Greek-led turmoil threatened “cascading default, bank runs and catastrophic risk.” That gathering followed the G-20 session.
People’s Bank of China Governor Zhou Xiaochuan said at the talks that the euro-area crisis “needs to be resolved promptly.” Japan’s Finance Minister Jun Azumi said many G-20 members urged Europeans to implement a July plan to expand powers of the European Financial Stability Facility.
Azumi told reporters in Tokyo today that Japan may weigh expanding its support to Europe through a regional bond fund if nations implement their pledged fiscal measures.
German Chancellor Angela Merkel said Sept. 25 that euro- region leaders must erect a firewall around Greece to avert a cascade of market attacks on other European states and said expanding the powers of the region’s rescue fund, known as the EFSF, was necessary to avoid contagion.
The challenge of debt sustainability in Europe is in part a consequence of the 1999 inception of the euro as a single currency, the U.S. Treasury chief signaled.
European governments took advantage of the lower interest rates “that came with monetary union, and they borrowed a lot. And they spent too much. And the governments got very big. Benefits got very generous,” he said.
Turning to the U.S., Geithner said “there’s a very good chance” Congress will approve President Barack Obama’s $447 billion jobs proposal. The plan, incorporating payroll-tax cuts and a $105 billion infrastructure program, is designed to help pull down the nation’s 9.1 percent unemployment rate.
Geithner was in Louisville, Kentucky, yesterday to meet with leaders from businesses including Ford Motor Co. to discuss the jobs proposal and to tour operations of package-delivery company United Parcel Service Inc.