By Steven K. Beckner

PARIS (MNI) – U.S. Treasury Secretary Timothy Geithner expressed a
fair amount of confidence Saturday that European authorities are on
their way to defusing the Greek debt bomb, and he made clear he sees no
need for an enlargement of the International Monetary Fund’s resources
to deal with the European debt crisis.

Geithner said he is open to the IMF using more of its “substantial”
existing resources to supplement Europe’s own “substantial” resources,
but he lent no support to emerging market countries who want to increase
IMF’s lending capacity or create a special IMF facility.

He also took the opportunity, once again, to demand that China
allow more rapid appreciation of its currency.

Geithner acknowledged that, while the U.S. economy is growing, “the
overall pace of economic growth is not strong enough.” And he repeated
his call for congressional passage of what he termed “a very substantial
package of actions to strengthen growth and job creation.”

But the Treasury chief’s main focus, as of the G20, was the looming
European debt crisis, which threatens to spread from Greece to other
southern European countries, undermine major banks and possibly
jeopardize Europe’s single currency system.

For weeks, he has been pressuring European leaders to move more
quickly to resolve a crisis which he has said poses “a significant risk”
to the global economy. And late Saturday afternoon, he came away from
meetings with his counterparts sounding hopeful that sufficient steps
will be taken in time to avert a debacle.

“We heard encouraging things from our European colleagues in Paris
about a new comprehensive plan to deal with the crisis on the
continent,” Geithner told reporters following a meeting of Group of 20
finance ministers and central bank governors.

“The elements of this plan include a much more substantial
financial firewall to ensure that the governments of Europe can borrow
at sustainable interest rates as they reform, a broad recapitalization
of banks, further support for a sustainable program in Greece and steps
toward fiscal union,” he continued, as Federal Reserve Vice Chairman
Janet Yellen looked on.

“This plan would complement the more aggressive actions recently
put in place by the (European Central Bank),” he said. “The plan has the
right elements, and its credibility is improved by the strategy adopted
by the governments of France and Belgium to limit the potential
collateral damage that could have accompanied the failure of Dexia.”

Geithner credited German Chancellor Angela Merkel and French
President Nicholas Sarkozy.

“The leaders of Germany and France have committed publicly to put
this framework in place over the next two weeks, before the G20 leaders
convene in Cannes,” he said. “They clearly have more work to do on the
strategy and the details, but when France and Germany agree on a plan
together and decide to act, big things are possible.”

Anticipating a series of question about the IMF’s role and
resources, Geithner said, “The members of the G20 have a strong
interest in supporting Europe, and we will continue to do so through the
IMF. The IMF has a substantial arsenal of financial resources, and we
would support further use of those existing resources to supplement a
comprehensive, well-designed European strategy alongside a more
substantial commitment of European resources.”

He repeatedly deflected questions about increasing IMF resources,
by reiterating that he thinks that the IMF has enough resources already
to go with Europe’s own “substantial” resources. In addition to regular
IMF quotas, which were recently doubled to roughly $767 billion, he
noted that the auxiliary New Arrangements to Borrow were expanded to
$500 billion in 2008.

“That’s a very, very substantial amount of financial firepower in
the context of a much more forceful” European financial package, he
said.

He was referring to a Euro 440 billion ($606 billion) European
Financial Stability Facility, which European leaders are expected to
“leverage” or borrow against to make much more money available to help
debtor nations and backstop banks.

He left the door open to backing greater use of existing IMF monies
to help Europe if necessary. After noting that the U.S. has already
supported “an exceptionally large role by the IMF in the program
countries (Greece, Portugal and Ireland) to date,” he said, “We are
prepared to continue to support an effective strategy in Europe with the
IMF. If there is a compelling case for more use of IMF resources, more
use of existing resources with the IMF alongside the European stratgey
then we will be supportive of that.”

Some have been skeptical about the sufficiency of German and French
proposals for leveraging the EFSF. Asked whether he thinks the use of
bond insurance guarantees to leverage the EFSF will provide enough
firepower to address the crisis, Geithner replied, “It depends on how
it’s designed, but it’s absolutely possible to design a financial
package or firewall that would have the desired effect.”

“But it’s all in the details,” he continued. “They are working very
hard on the very complicated question of how to design something that’s
going to be as effective as possible.”

Asked if there is anything missing from the strategy the European
are pursuing to handle the debt crisis, Geithner replied, “I think it
has the right elements,” though he said “it depends on the design of
financial instruments, it depends on the design of the recapitlaization
strategy, it depends on the quality of reforms this money is
supporting.”

“It’s not all about the money; it’s about money in support of
reform,” Geithner went on. “They’re engaged in the critical
important task of trying to build the institutions that need to
complement” the effort to contain the debt crisis.

“Those institutions involve greater discipline on the fiscal
policy of the member states and a much more coordinated capacity to
support and oversee a financial system,” he continued. “So the
institution building they’re doing, even though it’s going to take a
long time to finalize that effort, is very promising.”

As for the ability of European officials to recapitalize banks
while also dealing with the debt crisis in a timely way, Geithner said
“that’s their intention, and I think they know the stakes are high.”

“Though the world has a big stake in handling this effectively,
Europe itself has the strongest interest, and I think they’ve come to
recognize that if you underdo it, it can be expensive. If you let the
momentum build against you it’s very hard, very expensive to arrest …
.

“I think it’s their intention to go bigger, and we want to see them
meet their objective,” he said, adding that the Europeans “need to do
both of those things (recapitalization and the stabilization of the debt
crisis) together.”

In a communique which built on one issued in Washington on Sept.
23, Geithner, Yellen and their G20 colleagues “welcome(d) the completion
by Euro area countries of the actions necessary to implement the
decisions taken by Euro area Leaders on 21 July 2011 to increase the
capacity and the flexibility of the EFSF.”

“We look forward to further work to maximize the impact of the EFSF
in order to avoid contagion, and to the outcome of the European Council
on October 23 to decisively address the current challenges through a
comprehensive plan,” the communique added.

The meeting was held in advance of a G20 leaders summit in Cannes,
France Nov. 3-4.

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