US piles pressure on eurozone leaders to take decisive action on crisis
THE United States 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 European Central Bank meeting.
U.S. 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 in an interview with Bloomberg TV broadcast today.
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 Mr 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 eurozone'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 eurozone 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," Mr 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".
Mr Draghi's comments last week stirred speculation that the ECB might take more radical steps when its policy-setting Governing Council holds its monthly meeting on Thursday.
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.
Past financial crisis 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.