FRANKFURT/BERLIN: The United States raised pressure on euro zone leaders to take decisive action to solve the region's debt crisis, notably by lowering troubled members' borrowing costs, on the eve of a crucial European Central Bank meeting.
U.S. Treasury Secretary Timothy Geithner said the euro zone must take steps including "bringing down interest rates in the countries that are reforming and making sure those banking systems can provide the credit those economies need".
He made the comments in an interview with Bloomberg Television recorded in Los Angeles on Tuesday, a day after he flew to Germany to meet Finance Minister Wolfgang Schaeuble and ECB President Mario Draghi. They were broadcast on Wednesday.
Italy and Spain, the euro zone's third and fourth largest economies, could lose access to credit markets as the risk premium that investors demand to hold their bonds rather than safe-haven German debt has spiralled to levels considered unsustainable in the long term.
Italian Prime Minister Mario Monti said Draghi's pledge last week to do whatever it takes to preserve the euro were "bold and appropriate", and said European leaders were weighing joint intervention by the ECB and the euro zone's rescue funds.
He predicted that the future permanent rescue fund, the European Stability Mechanism (ESM), would "in due course" be granted a banking licence so it could tap ECB funds to buy almost unlimited amounts of bonds.
However, German Vice-Chancellor Philipp Roesler rejected pressure for the ECB to step in and cap the borrowing costs of troubled euro zone states, saying the central bank should stick to fighting inflation and not ease market incentives for reform.
"If you take away the interest rate pressure on individual states, you also take away the pressure on them to reform," Roesler, economy minister and leader of the Free Democrats, junior partners in Chancellor Angela Merkel's centre-right coalition, told reporters in Berlin.
He also reasserted Germany's firm opposition to letting the ESM borrow from the central bank, dubbing that "the road to an inflation union".
indiatimes.com
U.S. Treasury Secretary Timothy Geithner said the euro zone must take steps including "bringing down interest rates in the countries that are reforming and making sure those banking systems can provide the credit those economies need".
He made the comments in an interview with Bloomberg Television recorded in Los Angeles on Tuesday, a day after he flew to Germany to meet Finance Minister Wolfgang Schaeuble and ECB President Mario Draghi. They were broadcast on Wednesday.
Italy and Spain, the euro zone's third and fourth largest economies, could lose access to credit markets as the risk premium that investors demand to hold their bonds rather than safe-haven German debt has spiralled to levels considered unsustainable in the long term.
Italian Prime Minister Mario Monti said Draghi's pledge last week to do whatever it takes to preserve the euro were "bold and appropriate", and said European leaders were weighing joint intervention by the ECB and the euro zone's rescue funds.
He predicted that the future permanent rescue fund, the European Stability Mechanism (ESM), would "in due course" be granted a banking licence so it could tap ECB funds to buy almost unlimited amounts of bonds.
However, German Vice-Chancellor Philipp Roesler rejected pressure for the ECB to step in and cap the borrowing costs of troubled euro zone states, saying the central bank should stick to fighting inflation and not ease market incentives for reform.
"If you take away the interest rate pressure on individual states, you also take away the pressure on them to reform," Roesler, economy minister and leader of the Free Democrats, junior partners in Chancellor Angela Merkel's centre-right coalition, told reporters in Berlin.
He also reasserted Germany's firm opposition to letting the ESM borrow from the central bank, dubbing that "the road to an inflation union".
indiatimes.com
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