WASHINGTON ? The Obama administration is urging European leaders to deal more forcefully with a debt crisis that could significantly damage the U.S. and global economy.
Treasury Secretary Timothy Geithner told a congressional panel Thursday that the debt crisis has already slowed growth significantly in Europe and around the world. European leaders must move quickly to contain it.
"The crisis in Europe presents a very significant risk to global recovery," Geithner said during a hearing of the Senate Banking Committee. "Europe is so large and so closely integrated with the U.S. and world economies that a severe crisis in Europe could cause significant damage by undermining confidence and weakening demand."
Geithner told the panel that major U.S. banks and money market funds have moved to substantially reduce their exposure to the countries facing the most pressure. He called their direct exposure "very modest." But he said the crisis was slowing economic growth in Europe, which he said did represent a threat to the U.S. economy.
"We want Europe to move and we want to make sure they move more aggressively," Geithner told the committee.
Geithner said a key difference between the current European crisis and the 2008 financial crisis is that U.S. banks have greater capital reserves to hold against losses.
European leaders are moving to have their banks boost capital reserves, too. That would help them cover losses should Greece or another heavily indebted nation default on its debt.
On Wednesday, German Chancellor Angela Merkel, the head of Europe's biggest economy, backed the effort to recapitalize banks.
Geithner said European leaders must move more quickly to build up rescue funds that would give nervous financial markets greater assurances that they have the resources to prevent a default by a European nation from jolting the global financial system.
Geithner told both the Senate committee and an afternoon hearing before the House Financial Services Committee that it was important for Congress to boost U.S. economic growth by passing President Barack Obama's $447 billion jobs program as a way to jump-start growth in the U.S. He said faster economic growth would put the United States in a better position to withstand the fallout from the on-going debt problems in Europe.
Republican lawmakers, opposed to Obama's program because of concerns about federal budget deficits, argued that the biggest drag on the economy currently was excessive government regulations. They specifically attacked the new rules federal banking regulators are proposing to carry out a sweeping overhaul of the financial system approved in the wake of the 2008 financial crisis.
Democrats on the House and Senate panels criticized Geithner for failing to do enough to implement government programs aimed at helping people facing foreclosure on their homes.
Geithner argued that the financial regulations are aimed at addressing the excesses exposed by the financial crisis and are not stifling legitimate banking operations. He conceded that the foreclosure mitigation programs have fallen short of their original goals but he said the administration is continuing to work to improve the operation of those programs.
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