Geithner to discuss leveraging EU bailout fund

Sep 15, 2011, 10:52 p.m.
Secretary of the Treasury Timothy F. Geithner on Capitol Hill, March 16, 2011. REUTERS/Joshua Roberts

One difficulty is that leveraging a fund that is underwritten by guarantees from euro zone member states could increase liabilities across the board, putting pressure on the triple-A credit rating of countries such as France.


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 euro zone 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 "collectivizing 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 collectivizing 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 euro zone, 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 program but must make more progress to secure release of the next 8 million euros 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 euro zone 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.

(Additional reporting by David Lawder in Washington; Writing by Luke Baker, Paul Taylor and Neil Fullick; Editing by Alex Richardson)

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