Europe has the resources to deal with its debt crisis and should step up efforts to contain risks before they balloon into financial contagion, which could damage the US and global recovery, senior Obama administration officials said today.
"The challenge Europe faces is within the capacity of the Europeans to manage and the administration has been clear with our international partners that we are not seeking additional funding for the IMF (International Monetary Fund)," Treasury Undersecretary Lael Brainard said in testimony prepared for the Senate Banking Committee.
IMF resources "cannot substitute for a strong and credible European firewall and response," she added.
Euro zone ministers are seeking additional oversight of Greece's economy in return for releasing a €130 billion bailout package, the second such rescue fund for the country.
Although finance ministers heralded progress last night in contentious negotiations on a new rescue pact, tension flared as the Greek president Karolos Papoulias declared his country would not be subjected to taunts from Germany.
A decision on the bailout is expected to be finalised on Monday.
The delay in the decision has unnerved investors and prompted a pause in the market rally that has marked the start of 2012. Stocks fell, the euro weakened for a fifth day and commodities declined as leaders remained divided over the rescue and Moody's Investors Service said it may downgrade global banks. The cost of insuring government debt against default rose to a one-month high.
Greece faces a deadline in mid-March when it needs to make repayments on a €14.5 billion bond, or face bankruptcy.
Speaking after a three-hour conference call between the 17 euro zone finance ministers last night, Jean-Claude Juncker praised the progress Greece had made.
Mr Juncker said while "further considerations are necessary regarding the specific mechanisms to strengthen the surveillance of program implementation", Europe was set to make "all the necessary decisions" next Monday.
Greece has made "substantial further progress" by outlining €325 million in additional savings and providing written pledges from the leaders of its two main parties not to backslide on the budget cuts, he said.
He said additional work was required to strengthen oversight of how Greece would implement its austerity programme.
Greek finance minister Evangelos Venizelos said his country has now met all conditions set by the EU and IMF for the lifeline.
The leaders of the dominant centre-right and socialist parties in Greece signed pledges yesterday to implement a new austerity programme and the government agreed further cost-saving measures with the EU-IMF troika.
These developments, together with the Greek parliament’s endorsement of the austerity plan, went a long way towards meeting the conditions imposed on the country last week.
However, official and diplomatic sources said much remained in the balance as the authorities sought tough new bailout procedures to ensure Greek leaders fulfilled their promises.
The ministers’ talks came after a day of heightened rhetoric and rumour in which Mr Venizelos accused some unnamed euro countries of trying to push Greece out of the single currency.
“In the euro area, there are plenty who don’t want us anymore. There are some playing with fire, domestically and abroad,” Mr Venizelos said.
Additional reporting: Reuters/Bloomberg
