By Yali N’Diaye

WASHINGTON (MNI) – A U.S. treasury official Tuesday stressed the
urgency of a “decisive response” by Europeans to the European crisis,
telling Congress that as European leaders are meeting Wednesday to reach
an agreement on a comprehensive framework to address the crisis, “This
agreement will need to be implemented quickly and firmly.”

In his remarks prepared for a the House Financial Services
subcommittee, Assistant Secretary for International Finance Charles
Collyns stressed that “The European financial crisis presents the most
serious risk today to global recovery and the prospects for U.S. exports
and American jobs.”

As a result, he underlined that Treasury Secretary Timothy Geithner
remains “closely engaged with his European counterparts.”

That said, Collyns believes Europe does have the resources and the
capacity to face its challenges.

But as contagion fears spread, leading to leading to “increasing
strains on funding markets for banks and larger sovereigns in the euro
area,” Collyns urged Europe to act decisively, reminder that European
leaders have already taken steps and pledged to do what it takes.

Europeans have been meeting over the weekend to reach a solution,
with the aim of reaching an agreement on a framework to tackle the EMU
crisis on Wednesday.

The EMU finance ministers decided against calling an Ecofin meeting
Tuesday since their bosses, the heads of states, are meeting
Wednesday.

Beyond the meetings logistics, the U.S. has a deep interest in the
resolution of the European crisis despite a “moderate” direct exposure
of the U.S. financial system to EMU countries.

House Subcommittee on International Monetary Policy and Trade
Chairman Gary Miller expressed “hope” in his opening remarks that things
will finally be resolved on Wednesday.

The word from members of Congress at the beginning of the hearing
was consensual: Europe must act quickly and decisively.

Indirect exposure through derivatives instruments was more a source
of concern among representatives than the direct exposure, since the
scope of the indirect exposure remains unclear.

“Already, the crisis has slowed growth significantly in Europe and
around the world,” Collyns said, adding, “we are concerned about risks
from our substantial trade and investment ties with Europe.”

While the impact on the U.S. will depend on the evolution of
peripheral debt crisis in Europe, it will also depend on the U.S.
financial institutions’ own resilience.

To that effect, the Financial Stability Oversight Council, chaired
by the Treasury, “will continue to carefully monitor the potential risks
that could emerge from the peripheral European sovereign debt crisis.”

On the recovery front, the U.S. remains “all too vulnerable to
disruption beyond our shores,” Collyns stressed, justifying Obama’s jobs
plan. He also called on emerging markets to play their part in boosting
the global economy.

In their prepared testimonies before the same subcommittee, think
tanks also stressed the U.S.’ fate is linked to the sovereign debt
crisis in Europe.

“Because of the deep level of integration between our two
economies, we will sink or swim together,” predicted U.S. Chamber of
Commerce Vice President for Europe and Eurasia Peter Rashish.

“Considering that the European economy accounts for over 30 percent
of global economic output, a deepening of the European crisis could very
well derail the US economic recovery,” said American Enterprise
Institute Resident Fellow Desmond Lachman.

“Over the past few months, there has been a marked intensification
of the Eurozone debt crisis that could have major implications for the
United States economy in 2012,” he warned.

For Brookings Institution Fellow of Economic Studies Douglas
Elliott, the path the European crisis follows “is likely to be the key
determinant of whether the U.S. goes back into recession.”

** Market News International Washington Bureau: 202-371-2121 **

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