Geithner heads to Europe over growing debt fears
Treasury Secretary Timothy Geithner will be attending Europe's Economic and Financial Affairs Council and the Eurofil Financial Forum in Poland this week as worries escalate over sovereign debt fears and the potential impact a European financial crisis could have on the American economy. The Treasury Secretary is quoted by the Wall Street Journal as saying in a CNBC interview that "there is no chance that the major countries of Europe will let their institutions be at risk in the eyes of the market." The Treasury department confirmed Friday's visit with European financial leaders, saying the "Secretary will discuss with his European counterparts their efforts to contribute to global economic recovery and our continuing cooperation on financial regulatory reform." Recently investors in European financial institutions report that confidence in the banking sector is running at a historic low. On Wednesday, Moody's Investors Service (MCO) announced downgrade to French banks Société Générale and Crédit Agricole based on exposure to Greek bonds. BNP Paribas maintained its ratings and remains on review based on "funding challenges," the Moody's report states. Both BNP and SocGen maintain adequate capital to absorb the losses, the ratings agency said. Agricole, however, is facing "potentially persistent fragility in the bank financing markets, given the continued reliance on wholesale funding." Roger Meiners, a professor of economics at the University of Texas at Arlington, said Geithner's visit is likely to be about showing moral support for Europe. "I can't fathom that there is a promise of more money," he said. "The U.S. played a role in trying to help stabilize the European banking system," Meiners said. "When the whole system was on the verge of imploding, the U.S. made a lot of cash available." But he doesn't necessarily see a U.S. cash infusion to stave off European debt concerns. Meiners said a Greek default would have zero impact on the U.S. economy because the country alone is akin to the state of Alabama. "The issue is will that default cause a domino effect with countries such as Portugal, Spain, and Ireland," he said. Still, Meiners said Greece has failed to cut spending in the wake of other bailouts, so a true break from bailing out the entire country is needed. "Greece needs to go under in that they have not taken the appropriate steps to clean house," he said. Write to Kerri Panchuk.