Treasury Secretary Tim Geithner told the House Financial Services Committee what almost every educated person in America and Europe knows. The EU sovereign debt and bank balance sheet crises will have effects well beyond the region if the trouble there turns into a disaster.
“Our direct financial exposure to those governments and their financial institutions is quite small, but 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,” he told the committee.
The attitude of EU financial ministers and some IMF and ECB officials is that Geithner should concentrate on the repair of the economic and budget problems in the United States. They do not need advice from someone whose troubles may be greater than theirs. But that does not make Geithner’s comments any less insightful. It only shows how late the Treasury Secretary is to speak out on the risks the EU poses for the U.S.
Geithner has not expanded his observations to what America can do to prevent the spread of damage of the sovereign crisis to the U.S. That is because there is no solution. U.S. banks own sovereign paper from the region, although U.S. bankers say their exposure is “manageable.” A deep recession in Europe would ruin the export businesses of many American companies. If Geithner were to press those issues, he would find himself making another set of comments about what has been obvious for months.
Geithner’s role is to be the chief spokesman about American financial policy. In that role he may as well look forward and speak to what the U.S. can do to cushion a blow from an EU disaster. It is probably not much, but even the smallest solutions about how the administration might help American banks and exporters would help.
Douglas A. McIntyre