Europe News

Advice on Debt? Europe Suggests US Can Keep It

Stephen Castle and Louise Story |The New York Times
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The United States has long been considered a financial adviser to the rest of the world. But these days, American officials come carrying baggage.

Financial officials from the United States, once called “the committee to save the world” after the Asian crisis in the 1990s, now find themselves uttering apologies for the harm caused to the world by the 2008 financial crisis and coating their advice to European nations with the knowing nod of the battle-hardened.

Timothy Geithner
Photo by: Pete Souza

The change in tone was on display here on Friday when Treasury Secretary Timothy F. Geithner made an unusual appearance at a meeting of euro zone finance ministries. Mr. Geithner had been invited to offer some advice on fixing Europe’s sovereign debt and banking problems.

European leaders, who have been slow to react to the root causes of the problem, emerged from the meeting dismissive of Mr. Geithner’s ideas and, in some cases, even of the idea that the United States was in a position to give out such pointers.

“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,” Maria Fekter, the finance minister of Austria, said after the meeting Friday morning. “I had expected that, when he tells us how he sees the world, that he would listen to what we have to say.”

Such criticism was echoed by other attendees of the meeting, including the finance minister of Belgium, Didier Reynders, who said Mr. Geithner should listen rather than talk. Jean-Claude Juncker, president of the finance minister group, said European officials did not care to have detailed discussions about expanding their bailout fund “with a nonmember of the euro area.”

American officials are aware that they need to tread carefully when advising others, especially now, and they have avoided offering specific plans or proposals.

Instead, they point to recent programs in the United States simply as case studies. On Friday, Mr. Geithner, among other recommendations, encouraged the European leaders to add more firepower to their bailout funds, and described how the United States used leverage in 2008 to help bolster the markets.

The Treasury department said in a statement Friday that “Secretary Geithner encouraged his European counterparts to act decisively and to speak with one voice.” And a Treasury official said the department did not feel Mr. Geithner was rebuffed, because he did not have a specific agenda.

In the past, countries with financial problems have not always received the United States’ advice with open arms, at least until they needed financial support. Europe, analysts say, may never need outside support if its political leaders can find a way to use the wealth of nations like Germany to shore up more debt-troubled countries like Italy.

Still, it is hard to argue that the United States is not in a far weaker place to be doling out advice than it was in past crises, especially after the gridlock in August over raising the debt limit.

“We’re in a very different world environment right now,” said Ian Bremmer, president of Eurasia Group, a political consulting firm. “The United States has diminished credibility — it can’t simply tell Europe what to do. And it lacks the political will or means to throw a lot of cash at European troubles, even though they could become American problems very quickly.”

Unusual visit ...

It was unusual for Mr. Geithner to attend an internal meeting of the 17 financial ministers from European Union countries that use the euro. The meeting was held on the first of two days of talks in Poland, and so far European finance ministers are no closer to overcoming the hurdles holding up the plan they developed for Greece back in July.

Mr. Geithner did not offer up a fully developed plan or urge one particular action. According to an American official who was not authorized to comment publicly, the Treasury secretary urged Europe to send a strong message to the market by putting up a large enough sum of money to support its debt-ridden nations and banks. He suggested that could be done through the use of borrowed money, as the United States did in some programs in 2008. One program, known as TALF, was meant to revive lending in the consumer and small-business markets.

“If you show the market that you have what it takes to stand behind your banks and stand behind your sovereigns, it will cost less in the end,” said Lael Brainard, under secretary for international affairs at the Treasury.

Some Europeans have expressed ideas similar to Mr. Geithner’s for a broader rescue plan. Still, the United States faces a different sort of audience when giving ideas to Europe than it does when facing officials in developing economies.

“In the 1990s, there were lots of countries that would say, that’s working in the United States, how can we copy that?” said Gary Gensler, who worked at the Treasury in the 1990s and now leads the Commodity Futures Trading Commission. “We’re still very much the leader in financial regulations and in the financial markets, but the 2008 crisis showed we failed. Our financial regulatory system failed and Wall Street failed.”

Some policy makers say the United States might even be wise to turn to China as a partner in persuasion.

“Maybe this should be a joint effort,” said Sheila C. Bair, a senior advisor at the Pew Charitable Trusts, who was the chairwoman of the Federal Deposit Insurance Corporation until this summer.

She said it would be helpful for China and the United States to give European leaders the same message. But, she said, referring to the United States’ financial crisis in 2008, “we certainly don’t have clean hands in all this.”

Countries with financial problems do not want outside advice until they need outside money, said Jeffrey Shafer, who was the under secretary for international issues at the Treasury in the 1990s. “There are different stages in this process, and Europe right now is kind of in a halfway house,” he said. “The reality is that you get more influence when you are providing support.”

It would be difficult for the Obama administration to persuade Congress to give loans to Europe, analysts say, but there are other options. The Federal Reserve can open its discount window to European banks or, as it has already done, it can use foreign exchange lines. The Treasury could also lend out money from a facility that helps with exchange-rate problems. Or the United States could promote additional aid from the International Monetary Fund.

Even if the United States offered more aid, it is unclear if Europe would want it. Edwin M. Truman, a senior fellow at the Peterson Institute who has worked with Mr. Geithner, said the United States had questions to answer, too. “It’s not just a question of being the scolding school teacher,” he said. “Geithner will also have to give a convincing story that we’re dealing with our problems.”