Timothy Geithner is reported to have urged eurozone leaders to get their act together
16 September 2011 Last updated at 20:00
US Treasury Secretary Timothy Geithner has warned European leaders to stop the “loose talk” about divisions over how to solve the eurozone debt crisis, the Dow Jones news agency has reported.
Speaking at a closed meeting of eurozone finance ministers in Poland, he is reported to have told them that the divisions were “very damaging”.
The eurozone ministers delayed a decision on Greece’s next bailout loan.
Yet they did announce tougher economic governance rules.
Set to come into force for all nations in the European Union (EU) from October, they will make it easier for states to be punished for overspending.
Mr Geithner reportedly said: “What’s very damaging is not just seeing the divisiveness in the debate over strategy in Europe but the ongoing conflict between countries and the [European] central bank.”
He said that “governments and central banks need to take out the catastrophic risk to markets”.
His presence at the meeting was measure of how concerned the US is about the danger of economic contagion from Europe’s government debt and banking crisis.
But his comments about ending divisions seemed to open up some new ones.
Austria’s Finance Minister Maria Fekter was one eurozone politician at the meeting who voiced her objection to Mr Geithner’s comments.
She said: “I found it peculiar that even though the Americans have significantly worse fundamental [economic] data than the eurozone, that they tell us what we should do.”
According to the Austrian minister, Mr Geithner also called on eurozone nations to increase the size of the current 440bn-euro rescue fund, the European Financial Stability Facility, but German Finance Minister Wolfgang Schaeuble is reported to have replied that it was unlikely that taxpayers would agree.
She reported that the German minister had suggested a financial transaction tax instead, which the American secretary “had ruled out emphatically”.
Eurozone leaders will now decide in October whether to release the next 8bn euros ($11bn; £7bn) in bailout loans to Greece.
Expectations that the decision would be delayed from September had grown after a visit to Athens by eurozone and European Central Bank officials was called short at the start of this month.
Together with International Monetary Fund representatives, they have been visiting Greece on a regular basis to check on the process of the government’s spending cuts before the next tranches of the 110bn of loans agreed in May 2010 are released.
Jean-Claude Juncker, Eurogroup chief, said Greece was making “significant” progress on budget reforms.
The decision is expected to be made at a meeting of finance ministers in early October, with the funds released about 15 October – assuming there are no hitches.
Demands that Greece accelerate its austerity plans, and divisions among governments and policymakers over support for indebted eurozone members, have sparked turmoil in the financial markets.
The head of the Eurogroup of ministers, Jean-Claude Juncker, said he welcomed “the renewed, firm commitment of Greece” to its austerity programme and said they “would decide in October on the next tranche”.
The move to delay a decision on the next tranche of Greek aid came after the country’s finance minister Evangelos Venizelos said Athens would meet its austerity plan and default was not an issue.
“The intention is to meet the fiscal targets for this year and next year without delay, without exception and deviations,” he said on arriving in Poland.
But there remains concern that the meeting has not yet resolved some fundamental issues, such as whether Greece should provide collateral in return for more aid.
Our correspondent in Wroclaw, Chris Morris, said that eurozone leaders remain as divided as ever over whether Greece has done enough to deserve further funds.
Ahead of the meeting, Finland’s minister Jutta Urpilainen played down the chances of resolving a dispute over providing more money to Greece.
Finland wants collateral in return for contributing money to a second Greek bailout.
But Ms Urpilainen said: “Unfortunately I don’t see that we can find a solution tonight.”
And Austria’s finance minister refused to rule out an eventual Greek default.
On arriving for the meeting, Maria Fekter said more bailout money should be advanced to Greece, but “we will have to think about the alternative”.
Despite the apparent disputes over how to tackle the Greek problem, Tobias Blattner, European economist at Daiwa Capital Markets, told the BBC that the talks in Poland were much more wide ranging.
“Sadly enough Greece is actually just a tragic sideshow these days, it is really about how to stop contagion [spreading] to Spain and Italy.
“This is clearly one of the most pressing topics that were discussed today,” he said.
He added that he expected the eurozone leaders were debating how the European Financial Stability Facility – the fund set up to help bailout eurozone nations – could best operate if it was needed by other countries.
A run of several days of sharp falls on the stock markets was only halted on Thursday, when leading central banks, including the US Federal Reserve and Bank of England, agreed to flood the financial system with dollars.
The aim is to ensure that the global banking system has enough money to fund day-to-day operations, amid signs that institutions were becoming risk-averse and had begun reining in inter-bank lending.
Some analysts interpreted the central banks’ move as a possible prelude to a Greek default. Pumping liquidity into the banking system would help to ensure it does not freeze after a default, said National Australia Bank’s head of strategy, Nick Parsons.
A problem for some European governments, including Germany and Finland, is that public opinion data shows people are turning against providing funds for further bailouts.
Despite this backdrop of disagreement, Belgian Finance Minister Didier Reynders said on Thursday that now was not the time “to rebuild walls”, but to use the crisis to give new foundations to political integration in Europe.
In Washington on Thursday, International Monetary Fund managing director Christine Lagarde called for bolder action on both sides of the Atlantic, warning that indecision and “political dysfunction” was pushing the US and Europe back towards the brink.
The developed economies have entered a “dangerous new phase”, she said.