Eurozone needs better response to crisis: Obama

Updated: 2011-09-30 08:25

(China Daily)

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WASHINGTON - US President Barack Obama for the second time this week criticized the response of European governments to the continent's debt crisis, saying the turmoil continues to be a drag on the US economy.

"Some of the challenges that we've had over the last several months actually have to do with the fact that, in Europe, we haven't seen them deal with their banking system and their financial system as effectively as they needed to," Obama said from the White House.

Obama didn't specify what steps should be taken.

Amid concern that a default by Greece could plunge the global economy into a recession, the administration has stepped up public pressure on European leaders to resolve the 18-month sovereign-debt crisis. The issue will be at the top of the agenda when Obama joins other leaders from the G20 nations for a November summit in France.

Obama's remarks followed comments he made on Monday that Europe hadn't "fully healed from the crisis back in 2007 and never fully dealt with all the challenges to their banking system".

"So they're going through a financial crisis that is scaring the world," he said in California, where he was promoting his plan to revive US economic growth and hiring.

'Catastrophic risk'

At the annual meeting of the International Monetary Fund (IMF) and World Bank on Saturday in Washington, US Treasury Secretary Timothy F. Geithner warned that failure to combat the Greek-led turmoil could lead to "cascading default, bank runs and catastrophic risk".

"It would be safe to say they've ratcheted it up," Pierre Ellis, senior global economist at the research company Decision Economics in New York, said of recent comments by Obama and Geithner.

"What everybody fears is a sort of Round II of a credit crunch," Ellis said. Europe may be "very vulnerable to problems with debt over there and that, in turn, causing problems for our banks. And, of course, the White House is certainly not averse to finding reasons for problems in our economy".

The Obama administration has been in contact with European governments, urging officials "at the presidential level, at the ministerial level" to "take forceful and direct action" to deal with the crisis, White House press secretary Jay Carney said at a news briefing on Wednesday.

While the debt situation in Europe is "certainly a matter of concern", US officials continue to believe that governments there have the "financial wherewithal" to deal with the crisis, Carney said.

The Office of Management and Budget, in an August update of economic administration forecasts, projected the US economy will grow at a sluggish 1.7 percent rate this year and the jobless rate will average 9.1 percent. At the start of the year, the White House forecast a growth rate of 2.7 percent.

Severe repercussions

The IMF cut its forecast for global growth and predicted "severe" repercussions if Europe fails to contain its debt crisis or US policymakers deadlock over a fiscal plan.

Pressure from the United States has caused friction with Europe. Austrian Finance Minister Maria Fekter said earlier this month that she found it "peculiar" to be lectured by the US, a country with higher aggregate debt than the eurozone.

Standard & Poor's lowered the US' credit rating to AA+ from AAA on Aug 5.

Bloomberg News