Europe’s worsening debt crisis could significantly damage the U.S. , Treasury Secretary Timothy Geithner warned on Thursday as he urged Europe to shore up its bailout fund. “Europe is so large and so closely integrated with the U.S. and world economies that a severe crisis in Europe could cause significant damage by undermining confidence and weakening demand,” Geithner told the U.S. Senate Banking Committee. A growing number of economists expect the crisis will tip the into recession, putting a further drag on an already weak U.S. recovery and endangering President Barack Obama’s chances of being reelected next year.
The United States and the International Monetary Fund have been trying to get European leaders to put in place a strategy to stabilize the situation and Geithner has been pushing the European Union to leverage its 440 billion euro bailout fund. Some analysts have estimated that the fund should be expanded to at least 2 trillion euros to safeguard and Spain if the Greek debt crisis continues to escalate.
“The critical imperative is to ensure that the governments and the financial systems under pressure have access to a more powerful financial backstop,” Geithner said. At the hearing, which examined how the U.S. government’s risk council is fighting threats to the U.S. financial system, Geithner tried to assuage lawmakers’ fears that Europe’s debt problems could lead to another Lehman-like crisis. The investment bank’s 2008 bankruptcy rippled through the global financial system and triggered a run on money market funds. “Our firms are in a much stronger position,” he said.
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