U.S. to Europe: build bigger debt firewall

Wed Feb 22, 2012 6:59pm EST
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By Glenn Somerville

WASHINGTON (Reuters) - Treasury Department officials expressed cautious optimism on Wednesday that Europe was gaining ground on its sovereign debt crisis but cautioned that it still must put up a convincing financial firewall against the risk of contagion.

Speaking ahead of a Group of 20 meeting in Mexico, Treasury's under secretary for international affairs, Lael Brainard, said Europe's debt remains the most serious threat to global growth and specified Europe must do more before more aid from the International Monetary Fund is discussed.

Her remarks came just a day after euro zone finance ministers approved a $172.13 billion bailout package for Greece after lengthy negotiations.

Brainard praised "very significant commitments in recent days" made by Greece and its lenders and said that, if met, they will reduce Greek debt loads to levels that officials expect will avert default.

"When you put these things together, they suggest that the path forward for Greece, if it is able to deliver on the commitments, will be a sustainable path," Brainard said. Greece agreed to punishing spending cuts to secure a second bailout, which has led to mass protests but wards off a default that could have come as early as next month.

Brainard cited several signs of progress.

"Europe has made important strides over past days and weeks. New leaders in Italy and Spain are implementing ambitious reforms," she said. "The ECB's actions have helped to ease funding pressures...(and) European banks that were frozen out of the market have been able to borrow again."

Several European countries have expressed a wish for the IMF to take a larger role in fighting the debt crisis and are urging that it get more resources to be able to fight financial crises.   Continued...

Treasury Undersecretary for International Affairs Lael Brainard testifies at a House Financial Services Committee hearing on financial regulatory reform on Capitol Hill in Washington, June 16, 2011.  REUTERS/Jason Reed