In the latest round of public pressure mounted on European leaders to move swiftly to contain the worsening debt crisis, Washington has again demanded the EU “act fast”.
US President Barack Obama on Thursday (6 October) in his first press conference since the middle of the summer said that the American economy was flagging and warned against European “gridlock”.
“They’ve got to act fast,” he said speaking at the White House.
“Our economy really needs a jolt right now. This is not the time for the usual political gridlock,” he continued.
“The problems Europe is having today could have a very real effect on our economy at a time when it’s already fragile.”
His words were echoed by his economy chief, treasury secretary Timothy Geithner, who warned that the level of integration between the US and EU economies was such that Europe could end up dragging down the global economy.
“Europe is so large and so closely integrated with the US and world economies that a severe crisis in Europe could cause significant damage by undermining confidence and weakening demand,” Geithner said in remarks to the US Senate Banking Committee.
Washington wants to see the bloc massively expand its rescue operation by leveraging its €440 billion bail-out fund, perhaps to the tune of €2 trillion to stave off fears that Spain and Italy could not be bailed out in the event that the debt crisis spreads to two of Europe’s largest economies.
“The critical imperative is to ensure that the governments and the financial systems under pressure have access to a more powerful financial backstop,” he said.
Meanwhile, across the Atlantic, the gloom was apparent in comments by the governor of the Bank of England, Mervyn King.
After announced a further, £75 billion round of quantitive easing, King described the ongoing crisis as potentially worse than the Great Depression.
“This is the most serious financial crisis we’ve seen at least since the 1930s, if not ever,” he told Sky News.
“We’re having to deal with very unusual circumstances and to act calmly and do the right thing. The right thing at present is to create some more money to inject into the economy,” he said.
The latest round of quantitive easing, (QE) – in which the central bank in effect electronically ‘prints money’ by purchasing financial assets to inject a quantity of money into the economy – comes atop some £200 billion that has been pumped into the UK economy.
King said that he could not rule out further rounds of QE.
Meanwhile, the prime ministers of Sweden, the Netherlands and Finland have sent a letter to European Commission President Jose Manuel Barroso and EU Council President Herman van Rompuy demanding that the bloc ramp up the “peer pressure” on member states to take action to control their debts.
“A clear and credible commitment to work on an ambitious growth agenda, both at the national and at the EU level, is necessary to get Europe back on track,” said Fredrik Reinfeldt, Mark Rutte and Jyrki Katainen in a statement published late Thursday night.
“The seriousness of the crisis we face underlines the importance of an EU growth agenda,” they continued.
Specifically, the three want to see the bloc push further on “open and competitive markets, innovation, access to finance, smart regulation and a strong single market”.
They also insisted that a ‘two-speed Europe’ not develop as the eurozone further integrates: “All member states must be involved in the decisions to further the EU’s growth and competitiveness.”
Sweden is not a member of the eurozone and like other states that do not use the single currency, is concerned about being left out of key decisions as fiscal integration proceeds apace in the core of Europe.
“Those benefits would be lost in a two-speed Europe,” the three continued.
The also demanded “peer pressure must be intensified” to deliver greater European competitiveness.
Source: EUobserver, OEIC staff