Senior U.S. officials are playing a behind-the-scenes role in efforts to contain the European debt crisis, cajoling the region’s leaders to take more steps to calm markets and trying to mediate among European governments with competing interests.
U.S. officials have served at times as a quiet intermediary between European political leaders and the powerful European Central Bank, which tries to stay out of the political fray. In particular, according to U.S. officials, Americans have passed along information about how much money European governments might be willing to contribute to a rescue fund, a crucial question for the central bank as it considers its actions.
Since the European crisis began last year, Treasury Secretary Timothy F. Geithner has urged reluctant countries to create a large rescue fund, U.S. officials said.
On one conference call last year, when informed that some Europeans were contemplating a fund of about $50 billion, Geithner replied that such a small number would accelerate the crisis, U.S. officials said. Such a modest sum could undermine the confidence of global investors. Closer to $500 billion was needed, Geithner suggested. He and his team have followed up with a series of private proposals about how to design the rescue fund.
And top Federal Reserve officials, including Chairman Ben S. Bernanke and New York Fed chief Bill Dudley, along with counterparts at the Bank of England, initiated talks over how to prevent Europe’s debt problems from spiraling into a global banking crisis, the officials said. The discussions culminated in a Thanksgiving morning conference call among the world’s leading central bankers during which they agreed to announce joint action to ensure that banks around the world, and especially in Europe, have access to dollars at cheap rates.
In pushing European leaders to take stronger actions, U.S officials have sought to avoid provoking objections from the European public, which could resent efforts seen as heavy-handed, or putting European leaders in an awkward diplomatic position. Still, U.S. pressure has on occasion sparked a backlash.
The active U.S. role is based in large part on the long-standing relationships between U.S. officials — most notably Geithner — and their European counterparts.
His relationships, for instance, have allowed Geithner to pick up the phone and call top officials such as European Central Bank President Mario Draghi and his predecessor, Jean-Claude Trichet. Historically, such communication was much more formal, involving staff-level discussions, days of planning and scripted talking points.
On Tuesday, Geithner met in Germany with Draghi and Jens Weidmann, president of Germany’s central bank, as well as Germany’s finance minister, Wolfgang Schaeuble. The discussions came as European leaders prepared for a summit this week in Brussels that many analysts say may be the last chance for Europe to come up with an effective plan to address its crisis.
Geithner said at the briefing that he came to Europe to “emphasize how important it is to the U.S. and global economy to succeed in building a stronger Europe.” He added that he is encouraged by the increasing willingness of Europeans to take significant steps to bolster their financial system.
“This, of course, will take time. It will take a very substantial commitment, and a sustained commitment, of political will,” Geithner said.
Geithner has worked with European financial policymakers while addressing other crises over the past 15 years. He led the Treasury Department’s international division in the 1990s, fighting a series of debt crises in Mexico, East Asia and Russia that have significant similarities to the current trouble. From 2003 to 2009, he was president of the New York Fed, a job that gave him entree to the close-knit club of global central bankers.
For example, Geithner attended the gatherings for top central bankers held in Basel, Switzerland, six times a year.
Since the European crisis started, Geithner and European Central Bank leaders have worked together in trying to convince European leaders that the problem was more than just the profligate spending of highly indebted countries such as Greece. The continent was facing the prospect of financial contagion that could engulf the region
The Treasury and the European Central Bank find each other useful, according to Ted Truman, a former senior Treasury official. “The ECB is the only part of Europe in which you can call one number,” he said. “The ECB finds it useful to talk to the U.S. Treasury because that provides a way of triangulating what finance ministry attitudes are in Europe.”