Lessons from Geithner
Pierre Briancon
Fri, May 28, 2010
The Business Times

TIM Geithner thinks experience confers authority. The US Treasury secretary seems to be on a lecture tour. He is telling European leaders to stress-test their banks, wants them to keep stimulating their economies and urges them to be bolder in tackling their debt crisis. And the Europeans probably have something to learn from the American experience in managing home-grown financial crises and running mammoth budget deficits.

Mr Geithner's crucial lesson is that the right way to respond to a major financial crisis is to be fast, clear and mighty. On those counts, Europeans have failed. They could have tackled the Greek crisis for good back in February - but didn't, due to German opposition. Three months later, markets are still not convinced by the trillion dollars EU leaders said they are ready to spend to deal with the expanded sovereign debt crisis.

But Mr Geithner is hardly breaking news. EU leaders have promised to become more efficient, and are doing it their traditional way: haphazardly, with lots of bickering, quibbling, posturing and populism - for example, the recent German ban on short-selling.

But what's new? This has been the story of Europe for the best part of a half-century; a feuding family that gets stronger and closer through crises, and is kept in check by market discipline.

The thinnest skins in Europe may resent what they perceive as Mr Geithner's condescending tone. Some will see irony in the US Treasury secretary preaching international coordination on financial regulation. The US didn't care much about the rest of the world when it went ahead with its own bank taxes and reform. And naturally, the US has a vested interest in seeing Europe help prevent another jumbo recession.

But the substance of Mr Geithner's talk should not fall on deaf ears. He has a point in asking his EU partners not to cut their stimulus packages too much, too fast. That is not selfish advice. Continued European deficits will do nothing to shore up the euro, which is already down 14 per cent against the dollar this year - hardly in the interest of the United States.




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