U.S. warns Europe on 'draconian' austerity
Treasury Secretary Tim Geithner will testify on Capitol Hill Tuesday, March 20, about the European Debt Crisis.
Treasury Secretary Tim Geithner will testify on Capitol Hill today about the European Debt Crisis. The Republican Chairman of the House Financial Services Committee says the hearing is being held to "prevent U.S. taxpayer funds from being used to bail out Europe."
In his prepared remarks, Geithner is urging European countries to avoid draconian budget cuts that could make matters worse for the global economy. Marketplace's Stephen Beard is with us live from London with more on this.
Good morning, Stephen.
Stephen Beard: Hello, Jeremy.
Jeremy Hobson: So how are Europeans likely to react to this warning from the Treasury Secretary?
Beard: This won't go down well in Germany, which is the main supporter of austerity. And it won't go down well probably with the European Commission, which is handling the crisis.
But it will very probably raise a cheer in other parts of the eurozone where increasingly people agree with Geithner. They are questioning the whole approach of cutting budgets quite savagely while the economy is in a weak and fragile state.
Here's Marcel Alexandrovich of Jeffries International bank.
Marcel Alexandrovich: People looked at Greece and looked at how policy was handled there, and a lot of the European countries were simply not impressed. They are saying that Greece was pushed into too much tightening, too quickly, and look where that got us.
The Greek economy is still shrinking fast and has a 21 percent unemployment rate.
Hobson: Are there any countries that are doing what Geithner wants, that are not making these serious draconian cuts?
Beard: To a degree yes. The Spanish government has just openly defied the European Commission, and said we're not cutting our budget as much as you want. It will be bad for our economy.
And the Dutch of all people - who are famous for their fiscal discipline - they're having a particularly ferocious debate about austerity right now. So, yes, Geithner's remarks will cause some iritation in Europe but they'll also receive a quite a bit of support.
Hobson: Marketplace Stephen Beard in London. Thanks, Stephen.
Beard: Thanks Jeremy.