Newspaper article International Herald Tribune

Euro Crisis Moving to Back Burner for America ; Top U.S. Policy Makers Cite 'Significant Progress' by European Economies

Newspaper article International Herald Tribune

Euro Crisis Moving to Back Burner for America ; Top U.S. Policy Makers Cite 'Significant Progress' by European Economies

Article excerpt

The Treasury secretary and the Fed chairman said that strains on the global financial system had eased and the outlook had brightened.

The top U.S. economic policy makers said Wednesday that while Europe's long-simmering sovereign-debt crisis continued to weigh on growth, its threat to the American economy had significantly diminished during this winter.

Testifying before the Oversight Committee of the U.S. House of Representatives, the officials -- Ben S. Bernanke, the Federal Reserve chairman, and Timothy F. Geithner, the Treasury secretary -- said that Europe had made progress in reassuring investors of the safety of the euro currency and ensuring access to capital markets for all euro zone economies. As a result, strains on the global financial system have eased and the outlook has brightened.

"In the past few months, financial stresses in Europe have lessened, which has contributed to an improved tone of financial markets around the world, including in the United States," Mr. Bernanke said.

Mr. Geithner said, "The European economies at the center of the crisis have made very significant progress."

Both policy makers spoke in guarded tones, given the continued, if reduced, stress emanating from the euro area. But they described the situation in less dire terms than those used just months ago. And both offered praise for the actions taken by European leaders and the European Central Bank.

In testimony on the state of the international financial system before the House Financial Services Committee on Tuesday, for instance, Mr. Geithner said that the European situation was far less worrying than it had been toward the end of 2011, while emphasizing that problems on the Continent remained a threat.

The two policy makers said that the euro zone fiscal compact struck in January and actions taken by the E.C.B. -- particularly its long-term refinancing operations, which provide low-cost loans to cash-starved banks -- had helped to shore up European financial institutions and confidence in distressed nations.

Mr. Bernanke also defended the Federal Reserve's decision to pump dollars, currently about $65 billion worth, into the European financial system to help combat the crisis. That central bank action has helped strengthen the European and, therefore, the global financial system and lifted confidence, he said.

Mr. Bernanke said he was confident there was virtually no risk the United States would lose money on these dollar liquidity swap lines. "We're not taking any credit risk. We're not taking any foreign-exchange risk," he said during questioning. "The chances of losing any money are very low."

The policy makers said that even though the situation had brightened considerably in recent months, the euro zone would continue to weigh on U.S. growth. Even if Europe avoids a major shock, like a default, "the risks are that Europe is still growing on average at very weak levels," which translates into slower growth in the United States as well, Mr. …

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