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US raises pressure for action ahead of ECB meeting

The United States raised pressure on euro zone leaders to take decisive action to solve the region’s debt crisis, notably by lowering troubled members’ borrowing costs, on the eve of a crucial European Central Bank meeting.

business Updated: Aug 02, 2012 00:41 IST

The United States raised pressure on euro zone leaders to take decisive action to solve the region’s debt crisis, notably by lowering troubled members’ borrowing costs, on the eve of a crucial European Central Bank meeting.

US Treasury Secretary Timothy Geithner said the euro zone must take steps including “bringing down interest rates in the countries that are reforming and making sure those banking systems can provide the credit those economies need”.

He made the comments in an interview with Bloomberg Television, a day after he flew specially to Germany to meet finance minister Wolfgang Schaeuble and ECB president Mario Draghi.

Italy and Spain, the euro zone’s fourth and third largest economies, risk losing access to credit markets as the risk premium investors demand to hold their bonds rather than safe-haven German debt has spiralled to levels considered unsustainable in the long term.

Draghi last week said that the central bank would do whatever it takes to preserve the euro, stirring speculation it might take more radical steps when the ECB’s policy-setting governing council holds its monthly meeting on Thursday.

Geithner said Schaeuble and Draghi had walked him through plans they were putting in place to try to solve the crisis, but he cautioned against expecting immediate action. “What you know, from what Europe has said, that they are committed to doing what’s necessary to hold the Europe Union together,” said Geithner. “I absolutely believe they have the means to do it.”

Geithner said past financial crisis showed that the longer it took to address the issues, the more they cost. “I believe they understand that. That’s why they’ve signalled they are prepared to move further. Now again, this is going to take time.”

Market expectations of a major ECB move this week have faded after a spike following Draghi’s comments, with European shares slipping and a rally in Spanish and Italian bonds petering out.

Italian Prime Minister Mario Monti, touring Europe to press for action to bring down Rome’s borrowing costs, made his pitch to euro zone hardliner Finland on Wednesday, saying Italy did not need an assistance programme but it might in future need “a breathing break” from high interest rates

He said it was frustrating that reforms his government has carried out are not reflected in interest rates.

(Reuters)