MercoPress. South Atlantic News Agency

Geithner’s proposal to scale up rescue package gets cool response from EU

The (Geithner) proposal “has neither been rejected nor endorsed”

US Treasury Secretary Timothy Geithner drew a cool response from EU policymakers when he urged them to leverage their bailout fund to better tackle the debt crisis and to start speaking with one voice.

In a 30-minute meeting with Euro zone finance ministers on Friday, Geithner pressed for the 440 billion Euros European Financial Stability Facility (EFSF) to be scaled up to give greater capacity to combat the bloc's debt malaise, a senior Euro zone official said.

The US Treasury said of Geithner's role that he “did not advocate or oppose any specific policy prescriptions.”

One analyst familiar with the proposal said it would involve the EFSF guaranteeing a portion -- perhaps 20% -- of potential losses on Euro zone debt, so that its capital would effectively stretch five times further.

Geithner's presence at the meeting underscored the depth of US alarm but ministers were resistant to Washington telling the 17-country Euro zone and its finance chiefs what to do.

“He conveyed dramatically that we need to commit money to avoid bringing the system into difficulty,” Austria's Finance Minister Maria Fekter told reporters after the meeting.

“I found it peculiar that even though the Americans have significantly worse fundamental data than the Euro zone that they tell us what we should do and when we make a suggestion ... that they say no straight away.”

Fekter said there had been particular disagreement over suggestions that Europe should find more money to fight the crisis. When German Finance Minister Wolfgang Schaeuble explained that would not go down well with taxpayers and that the only way to fund it would be a financial transaction tax, Geithner flatly ruled that out.

However, one senior official said Geithner's proposal on leveraging the EFSF had neither been rejected nor endorsed.

“It is being discussed,” the official said, emphasising that the priority was for euro zone national parliaments to ratify new powers for the EFSF agreed in July so it can lend to countries under attack in the markets and buy sovereign bonds to prop up struggling states.

Geithner was the head of the New York Federal Reserve at the height of the 2008-09 financial crises when he helped develop an emergency loan facility that was used to help restart the frozen asset-backed securities market.

While no one described the gathering as ill-tempered or heated, it appeared clear from the reaction afterwards that Geithner and the Europeans did not see entirely eye-to-eye.

Jean-Claude Juncker, the chairman of the Eurogroup, said he was not prepared to discuss issues privy to the Euro zone with someone from outside the currency bloc.

“We are not discussing the expansion or increase of the EFSF with a non-member of the Euro area,” he told reporters.

He also ruled out any further fiscal stimulus, something Washington has also called for. “Fiscal consolidation remains a top priority for the euro area,” he said.