US TREASURY secretary Timothy Geithner will meet EU leaders and officials this week to reinforce his calls for co-ordinated efforts to fight off the crisis in the euro and rein in government spending.

The news came as EU ministers pledged at the weekend to stiffen sanctions on high-deficit countries and ruled out setting up a mechanism to manage state defaults, saying no euro country would be allowed to renege on its debts.

After committing as much as €860 billion to halt a European sovereign debt crisis, the finance ministers vowed to plug holes in the euro zone’s system of penalties for states with runaway deficits.

“We will provide new sanctions, more than is now provided,” EU president Herman Van Rompuy said after the four-hour brainstorming session in Brussels. “Everyone is ready to go ahead with a strong stability and growth pact.”

Meanwhile, US treasury secretary Timothy Geithner will tell his Chinese counterparts that Europe’s battle with the Greek-triggered debt crisis should have only a small effect on the broader global recovery.

Mr Geithner and US secretary of state Hillary Clinton are in China for high-level talks. Mr Geithner will then depart for London, Berlin and Frankfurt to meet with European officials and reinforce his call for co-ordinated efforts to fight off the crisis and rein in government spending.

One-sided efforts like Germany’s ban on naked short-selling are counter-productive and unlikely to boost investor confidence, a US official said yesterday.

The official also said such measures have a poor historical track record and were unlikely to be adopted on a wider scale.

Heading into this week’s meetings, David Loevinger, the US treasury’s senior co-ordinator for China affairs, called for China to “do everything it can” to contribute to a broad-based global recovery.

This includes allowing the yuan, which has been pegged at about 6.8 to the dollar for the past 22 months, to appreciate against the US currency.

“Meeting at this time allows us to demonstrate what is a substantial strength of both the United States and China – a capacity to act quickly, to solve problems, to take initiative and to take a leadership role,” Mr Geithner said in Beijing.

The US assessment that Europe’s debt crisis will not drag down the global economy could be aimed at easing Chinese fears about letting the yuan rise while the European economy lags behind the US and parts of Asia.

US officials have varied opinions about the impact of Europe’s debt crisis. Federal Reserve governor Daniel Tarullo said last week that Europe’s debt crisis may pose a threat to the US and world economies as trade shrinks and banks incur losses on European investments.

The euro fell against the dollar on May 19th to its weakest level in four years a day after Germany banned naked short sales, adding to concern the region’s leadership may not be able to contain the crisis.

It rebounded on May 21st when speculation traders who had bet on its decline amid the sovereign-debt crisis had to buy back the currency as it strengthened to a one-week high. – (Bloomberg)