Wroclaw - US Treasury Secretary Timothy Geithner arrived in Poland on Friday for crunch talks with European finance ministers, as eurozone nations scramble to douse the Greek debt fire.
Geithner, who has taken the rare step of joining European Union ministers as they hold internal talks, did not speak to waiting reporters as he entered a congress centre in Wroclaw.
Geithner, who was invited by Poland which currently holds the rotating presidency of the 27-nation EU, arrived alongside French Finance Minister Francois Baroin, smiling and shaking hands with the latter.
On Wednesday, Geithner had said that European leaders "recognise they are going to have to do more, they recognise they have been behind the curve" in dealing with the debt crisis.
"They have to move more quickly," he said.
He said Europe needed to shore up global confidence that it can handle the crisis stemming from unsupportable debt loads in countries like Greece, Portugal and Ireland.
But he said he believed Europeans had the will, tools and financing to handle the crisis.
"This is their challenge and they have the economic and the financial capacity to meet this challenge," he said.
US steps in
Washington set up an emergency fund to support US lenders
during the global credit crisis. With signs of stress in Europe now, the
European Central Bank (ECB) and those of Britain, Japan and Switzerland joined forces
on Thursday to reintroduce three-month dollar liquidity operations in the
fourth quarter.
The coordinated action boosted the euro and global stocks,
prompting market speculation that European policymakers may take bold steps to
deal with a crisis that is now threatening Italy, the eurozone's third-biggest
economy.
After rising 2% on Thursday, world stocks rallied in Asia on
Friday. The MSCI world stock index rose 0.6% in Asia to a one-week high,
marking its fourth straight daily gain. The euro held on to Thursday's strong
gains.
The central bank move was "exactly what is needed"
since the world has entered a dangerous phase of the crisis, said International
Monetary Fund (IMF) chief Christine Lagarde. She repeated her call for European
countries to recapitalise their banks.
Geithner holds talks with EU ministers in Poland and will
propose that the European Financial Stability Fund (EFSF), the €440bn fund
set up in May 2010, be used in a similar way to an emergency loan fund created
by the US Treasury and the Fed in 2008 to thaw frozen credit markets, sources
said.
"Geithner will probably insist on the importance of
leverage to have more funds to ringfence the big Europeans, Italy and Spain,
and to find a solution for Greece," an EU official told Reuters ahead of
the meeting in Wroclaw.
The treasury secretary is expected to expound the model of
the Term Asset-Backed Securities Loan Facility (TALF) that US financial
authorities used to jump-start the asset-backed securities market.
Under TALF, the Treasury offered up to $20bn in credit
protection to the New York Federal Reserve Bank, where Geithner was then
president, allowing it lend up to $200bn. In return, the New York Fed took in
asset-backed securities as collateral with a haircut.
TALF was credited with restarting frozen US markets for
securities backed by car, student and small business loans and leases. By
taking in paper that had no other buyers at the time, the Fed acted as market
maker. No losses were reported on the programme.
While it remains unclear whether the same mechanism could be
used to leverage Europe's bailout funds, one analyst said EFSF money could be
used to guarantee a portion of potential losses on eurozone sovereign debt
bought by the ECB, providing more purchasing clout than if it just bought the
bonds in the secondary market with money on hand.
"It is possible to leverage the EFSF so as to expand
its headline capacity to support sovereign bonds, for example through the use
of partial guarantees against first losses," said Sony Kapoor, managing
director of think tank Re-Define.
One difficulty is that leveraging a fund underwritten by guarantees from eurozone member states could increase
liabilities across the board, putting pressure on the triple-A credit rating of
countries such as France.
Another no for euro bonds
Leveraging the EFSF would be a radical new approach in the
crisis at a time when financial markets are fixated on the possibility of the
eurozone introducing jointly issued bonds, even though such a move is strongly
opposed by Germany and unlikely to happen any time soon.
German Chancellor Angela Merkel again bluntly rejected such
bonds as a solution to the crisis on Thursday, saying that "collectivising
debts" would not solve the problem.
"In order to bring about common interest rates, you
need similar competitiveness levels, similar budget situations. You don't get
them by collectivising debts," she said.
The European Union's top economic official meanwhile said he
expected international lenders to be able to recommend by the end of the month
releasing a vital next tranche of aid to Greece, warding off the threat of an
imminent default.
While that may keep Greece afloat until it gets a second
bailout package from the eurozone, the finance minister said the country would
remain mired in recession through 2012, the fourth year in a row, a contraction
that is only likely to fuel popular outrage at the austerity drive.
Lagarde was more cautious on Greece's progress, saying
Athens had partially implemented reforms under its EU/IMF bailout programme but
must make more progress to secure release of the next €8m in emergency loans.
"If there has been no implementation, we don't
pay," she warned.
On a conference call with Greek Prime Minister George
Papandreou on Wednesday, Merkel and French President Nicolas Sarkozy voiced
their support for keeping Greece in the eurozone and continuing financial
assistance provided it sticks strictly to austerity measures to meet its fiscal
targets.
EU Economic and Monetary Affairs Commissioner Olli Rehn said he now expected an EU/ECB/IMF "troika" of inspectors to complete their review of Greece's fiscal targets by the end of the month.