Why the US is Trying to Help Fix the Euro

US Treasury Secretary Timothy Geithner was in Europe Friday urging Europeans to fix their broken currency, and rescue bankrupt Greece. His comments were not well received. Anchor Lisa Mullins speaks with the BBC’s Business Correspondent Andrew Walker.

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Lisa Mullins: I’m Lisa Mullins and this is The World, a coproduction of the BBC World Service, PRI and WGBH in Boston.  US Treasury Secretary, Timothy Geithner, was in Poland today.  He urged a gathering of European Union finance ministers to get serious about tackling their debt crisis. But his presence there rang false to some, given America’s own debt problems and stagnant economy.  That didn’t stop Geithner though from giving Europe his advice, according to BBC business correspondent, Andrew Walker.

Andrew Walker: He seems to have had some fairly strong messages to give to eurozone finance ministers, cut out the loose talk about the future of the euro area.  He said that was a reference to some comments last week from some significant German figures who said that Greece might leave the euro…throw more money at the problem, and he also wanted to suggest they use, borrow some ideas that the Fed and the US treasury had used during the financial crisis a couple of years ago to try and get a little bit more bang for the buck in interventions that are made. He doesn’t seem to have gone down all that well I have to say.  I think there’s a view in Europe that it’s not really that easy to throw extra money at the problem.  German taxpayers in particular feel they’ve gone as far as they can do.  The idea of borrowing some ideas from the treasury and the Fed I think is something euro leaders will think about, but it’s not really in front of their minds just at the moment.

Mullins: So is there anything he said that did resonate with those who were present that seemed like it might be doable?

Walker: Well, that particular idea about borrowing the idea of the Fed and the treasury a couple of years ago, I think that’s something, an idea they’re certainly prepared to look at; but there was certainly from some of the European finance ministers a sense that almost you might say, who does he think he is coming across and telling us how to run things?  Some pointed out that if you look at some particular measures of government finances the US is actually in a worse shape than the eurozone, if you take it, the eurozone as a whole.  The problem with Europe is just that those problems are very unevenly spread.

Mullins: Can you just explain especially for those Americans listening who might be wondering why the US’ treasury secretary is over there to begin with when you’re talking about the health of the eurozone, what the tie is from there to here?

Walker: It is very striking.  This is not something the US treasury secretaries generally do you have to say.  And the reason is I think there is a view, an understandable view, that if things were to go really badly wrong in the eurozone you would have all sorts of consequences for the rest of the world. The direct exposure of American banks to potential default let’s say by the Greek government is not all that great, but you might see a cascade…the worry at least is that you might see a cascade of further defaults, more problems in the European banking system, and the American financial system getting caught up in that.  In addition, I think you’d see all kinds of damage done to confidence in business in the financial circles, people becoming much more reluctant to have anything to do with any investment that looks remotely risky.  And there’s no question there is a risk of another global recession if things were to go sufficiently badly in the eurozone.

Mullins: So when you’re talking about that spiraling down are you talking about not only in Europe, but also perhaps the cost to American-based banks or the cost to American jobs?

Walker: Ultimately, a potential for a cost to American jobs, yes, if you were to see a sufficient damage done to confidence; not just in the American banks, but certainly some possibility of significant damage to some of them as a result of that nightmare scenario I describe.  But a much more generalized loss of confidence around the world, which undoubtedly if it really did pan out as badly as it could do, would undoubtedly have an implication for American jobs.

Mullins: We should say also just in closing that the centerpiece of this issue is Greece, and I know the finance ministers have now delayed until next month, until October, a decision on whether to pay out the next installment of a bailout loan to Greece.  Without that funding, those in Athens say look, we’re gonna run out of money, we’re gonna default on our debt.  Why would the finance ministers put off a decision that seems so crucial?

Walker: To put some pressure on Greece I think to deliver the very tough further austerity measures that they think are necessary to get on top of its debt burden.  Greece does have the cash to manage until October and provided the decision when it’s taken in October is to hand over the next installment of these rescue loans, then Greece  can limp on a bit longer.  Having said that you know, the view in the financial markets is that some sort of default sooner or later by Greece is inevitable.

Mullins: All right, thanks a lot, Andrew Walker.

Walker: My pleasure.

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