EU crisis may cause significant harm to US - Treasury chief

06 October 2011 19:33  [Source: ICIS news]

WASHINGTON (ICIS)--The European debt crisis poses a major global economic risk and could cause “significant damage” to the US, even though American banks have little exposure to the most vulnerable EU nations, Treasury Secretary Timothy Geithner said on Thursday.

In testimony before the Senate Banking Committee, Geithner said “the crisis in Europe presents a significant risk to global recovery” and already has slowed growth substantially worldwide.

He said he and Treasury Department senior staff “are working closely alongside the IMF [International Monetary Fund] to encourage European leaders to move more forcefully to put in place a comprehensive strategy to stabilize the situation”.

Although he did not name a specific dollar or euro value for the new EU financial rescue fund being considered, he said it must be large enough to be credible.

“The critical imperative is to ensure that the governments and the financial systems under pressure have access to a more powerful financial backstop,” he said.

Geithner said while US banks and other financial institutions now have little direct exposure to Greece’s sovereign debt or to other financially vulnerable EU nations, that limited exposure does not insulate the US from potentially significant damage if Greece defaults and Europe’s banking system is consequently threatened.

US financial institutions, including our major banks and money market funds, have substantially reduced their exposure to the economies of Europe that are under the most pressure,” he told the committee.

“Our direct financial exposure to those governments and their financial institutions is quite small,” he said.

However, he added, “Europe is so large and so closely integrated with the US and world economies that a severe crisis in Europe could cause significant damage by undermining confidence and weakening demand”.

($1 = €0.75)

Paul Hodges studies key influences shaping the chemical industry in Chemicals and the Economy

By: Joe Kamalick
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