President Barack Obama’s administration is stepping up pressure on Europe to tackle the debt crisis, sending for the second time in the region one of its top people. It seeks to promote aggressively in Greece, Spain, France and Germany the U.S. recommendations for managing the crisis, writes Wall Street Journal. A recommendation promoted by U.S. Secretary of State Lael Brainard is expanding the role of the euro zone rescue fund, with resources of 700 billion euros, and increasing the firepower of this weapon. Thus, the fund would be entitled to directly recapitalize European banks, instead of forcing problem states to take new loans that would increase market fears.
Another recommendation is to stabilize the European banking capital and empower the ECB to finance governments and commercial banks. These measures should be implemented in parallel with very long-term economic reforms that stimulate growth in economies with problems. Brainard met Tuesday with Greek Finance Minister George Zannias and Wednesday with officials of the ECB and Spanish administration in Madrid. Today and tomorrow Brainard will go to Paris and Berlin. Brainard’s visits are the most direct U.S. intervention in Europe since December, when a similar action had at the center the Treasury Secretary Timothy Geithner. Americans have a secondary role in crisis management in the euro area, and this is the first modern financial crisis in which the U.S., the largest economy in the world, does not lead response efforts.
The U.S. economy is facing increasing problems for the third consecutive year, partly because of problems in the euro area. The stakes are even higher for the Obama administration as the U.S. will hold presidential elections in fall, and the economy is central to the campaigns of two candidates, Barack Obama and Mitt Romney.
European fightback
European Commission warned yesterday that the euro area should proceed to a union at the banking system level and it should take into account direct recapitalization of banks through the permanent financial aid fund, the European Stability Mechanism. The Commission’s appeal, formulated in a document on the euro area strategy seems to directly address concerns of financial markets about banking problems in Spain and cost of the government in Madrid with saving local credit institutions – a factor which increased the borrowing costs of Spain to unsustainable levels, according to Thomson Reuters. “To cut the link between banks and countries, a direct recapitalization through European Stability Mechanism should be considered”, reads the EU Commission statement.
Reply