US calls on ECB to cap borrowing costs of struggling eurozone nations
The US raised pressure on eurozone 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 ECB meeting.
US Treasury Secretary Timothy Geithner said the eurozone 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 before he flew to Germany to meet German Finance Minister Wolfgang Schaeuble and ECB President Mario Draghi.
Italy and Spain, the eurozone's fourth and third-largest economies, could lose access to credit markets as the risk premium investors demand to hold their bonds rather than safe-haven German debt has spiralled to levels considered unsustainable in the long term.
But German Vice-Chancellor Philipp Roesler rejected pressure for the ECB to step in and cap the borrowing costs of troubled eurozone countries, saying the ECB should stick to fighting inflation and not ease the market incentive to reform.
"If you take away the interest rate pressure on individual states, you also take away the pressure on them to reform," he said.
He also reaffirmed Germany's opposition to letting the eurozone's rescue fund borrow from the ECB to buy government bonds, calling it "the road to an inflation union".
Mr Draghi last week said that the ECB would do whatever it takes to preserve the euro, stirring speculation it might take more radical steps when the ECB's policy-setting Governing Council holds its monthly meeting today.
Mr Geithner said Mr Schaeuble and Mr Draghi had walked him through plans they were putting in place to try to solve the crisis, but he cautioned against expecting immediate action.
"What you know, from what Europe has said, is that they are committed to doing what's necessary to hold the Europe Union together," said Mr Geithner. "I absolutely believe they have the means to do it."
Mr Geithner said past financial crises showed that the longer it took to address the issues, the more they cost.
"I believe they understand that. That's why they've signalled they are prepared to move further. Now again, this is going to take time," he added.