Washington - Former White House aide Lawrence Summers on Sunday urged Europe to take a more aggressive response to the debt crisis sweeping the region, and suggested patience with its approach was running thin.
In an opinion piece published by Reuters, Summers - a Harvard professor and former treasury secretary under president Bill Clinton - said that if Europe does not get the crisis under control soon, other Group of 20 countries should become more vocal in pressing Europe on doing what they think is best.
"It is to be hoped that European officials can engineer a decisive change in direction but if not, the world can no longer afford the deference that the IMF and non-European G20 officials have shown toward European policymakers over the last 15 months," Summers wrote.
His comments came ahead of a summit of eurozone leaders on Thursday in Brussels, aimed at a second rescue deal for Greece.
Alarmed by the spread of market jitters over Greece to Italy and Spain, where bond yields have surged in the past 10 days, European governments are struggling to put together a second bailout of Greece that would supplement a €110bn rescue launched in May last year.
Summers argued that if there is any chance for success in stemming the financial crisis, policymakers must first recognise that maintaining systemic confidence is key.
"There must be a clear and unambiguous commitment that whatever else happens, the failure of major financial institutions in any country will not be permitted," Summers wrote.
He said the European Central Bank (ECB) was right to be concerned that punishing creditors for the sake of teaching lessons or building political support was reckless in a system that depends on confidence.
Summers, who headed the National Economic Council for the first two years of the Obama administration, called for a fundamental shift towards an approach that focuses on avoiding systemic risk.
He also laid out measures for containing the euro-debt storm. These include:
- Interest rates on official sector debt should be reduced to a European borrowing rate, defined as the rate at which common European entities backed with joint and several liability by all the countries of Europe can borrow.
- Countries whose borrowing rate exceeds some threshold - perhaps 200 basis points over the lowest national borrowing rate in the Euro system - should be exempted from contribution requirements for bailout funds.
- Countries judged to be pursuing sound policies will be permitted to buy EU guarantees on new debt issuances at a reasonable price payable on a deferred basis.
"The alternative to forthright action today is much more expensive action - to much less benefit - in the not too distant future," Summers wrote.
"The next few weeks may well be among the most consequential in the history of the European Union."