Sunday, September 18, 2011

Tension high between White House and Europe as IMF and World Bank meet in Washington

Verne Strickland Blogmaster / September 18, 2011

Tensions between the Obama administration and Europe’s leaders will be high this week when Washington hosts the annual meeting of the International Monetary Fund (IMF) and World Bank.

 The debt crisis in Europe has spread to U.S. shores, causing gyrations to financial markets also unnerved by the near-failure of the administration and Congress to raise the debt ceiling.

European leaders have struggled to get their hands around a debt crisis that started in Greece and has moved to European giants Italy and Spain. Worries about whether those countries can pay back their debts, and how this might affect banks on both sides of the Atlantic has contributed to a global economic slowdown.

It is a slowdown that threatens a second term for President Obama, whose approval ratings have plummeted on his handling of the economy.

Frustration with Europe was highlighted Friday by a lecture Treasury Secretary Tim Geithner gave to that continent’s financial ministers. Geithner urged a broad, united effort to fight the debt crisis, but his counterparts appeared to feel they were being strong-armed by a representative of a country that is in no position to throw stones when it comes to debt problems.

“I found it peculiar that even though the Americans have significantly worse fundamental data than the euro zone that they tell us what we should do and when we make a suggestion ... that they say ‘no’ straight away,” said Austrian finance minister Maria Fekter, according to media reports.

“We can always discuss with our American colleagues. I'd like to hear how the United States will reduce its deficits ... and its debts,” Belgian Finance Minister Didier Reynders added pointedly.

The Treasury Department paints a more equitable picture, saying Geithner "contributed thoughts and ideas on how European governments could develop instruments to ensure adequate firepower to address their challenges. Secretary Geithner encouraged his European counterparts to act decisively and to speak with one voice."

He did not advocate or oppose any particular strategy, according to Treasury.

The back and forth set a less than spectacular beginning for this week’s meetings in Washington, which will coincide with a crucial Federal Reserve meeting on what to do with the U.S. economy.

The Federal Reserve's policy-making committee convenes Tuesday and Wednesday. It originally was to meet for only a day to set the course for the nation’s monetary policy, but was increased to two days given the perilous economic conditions, something that has heightened expectation.

A popular candidate for Fed stimulus would be “Operation Twist,” which is when the Fed reorients the balance of its portfolio by overloading on longer term securities in an attempt to lower long-term interest rates.

Both in America and abroad, the fundamental point of tension is the same – the search for a balance between prudent fiscal management and the need for governments to do something to get their economies moving again.

While the standoff between Republicans and Democrats is well-known within the Beltway, the fight over finance has been reaching a head in Europe as well. After the European Central Bank announced last week it would buy Italian and Spanish bonds to help the beleaguered nations, its top German official quit in protest.

IMF Managing Director Christine Lagarde, alongside Federal Reserve chief Ben Bernanke, has sought to tiptoe down the middle of the debate. Both have recently warned against extreme, immediate cuts, which could endanger an already fragile economic recovery. Rather, they have called on governments to boost the economy now, but lock in plans to rein in spending over the next several years.