Geithner backs key IMF role in easing Europe crisis

BERLIN/FRANKFURT Tue Dec 6, 2011 6:33pm EST

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BERLIN/FRANKFURT (Reuters) - Treasury Secretary Timothy Geithner said on Tuesday the International Monetary Fund has an important role to play in resolving Europe's debt crisis, but he moved to quash reports that the U.S. Federal Reserve would loan money to the IMF.

"I would say the reports I've read in the press about what the Fed can do are not accurate," Geithner said in Berlin when asked about European reports that the Fed could make more than $100 billion in loans to the IMF to backstop euro zone governments racked by debt woes.

In a joint news conference with German Finance Minister Wolfgang Schaeuble at the outset of a three-day, five-city blitz of Europe, Geithner said he expects the IMF to continue to play a big role in helping to resolve Europe's crisis.

Geithner, who traveled to Europe to urge officials to take decisive action to resolve the debt crisis at a crucial summit on Friday, noted that it is part of the IMF's job to help nations with their finances if countries are willing to enact reforms.

"The IMF exists in some ways for this purpose," he said. "The IMF can play a very helpful role in terms of not just providing advice and design of reform programs, but also to provide an independent objective public assessment of the progress countries are making in meeting those basic commitments."

Some European officials want to boost the IMF's resources through bilateral loans to the fund from euro zone national central banks. Channeling money through the IMF could make it more politically palatable for wealthier European countries to devote more resources to the region's bailouts.

U.S. officials have warmed to this idea in recent weeks, but have ruled out U.S. contributions, and they continue to see the IMF as a second line of defense after rescue funds put up by European countries.

As the IMF's largest contributor, the United States has effective veto power over major shifts in the way the IMF operates, but Geithner left the door open to an expanded IMF role.

"Of course the IMF has a role to play in this. We will continue to support a constructive role by the fund in the context of the efforts the Europeans are making to build a stronger Europe," he said.

WHAT ROLE FOR ECB?

Schaeuble said Germany was grateful for the continued support that the IMF was providing to Europe.

But both Schaeuble and Geithner declined to comment on whether the European Central Bank could take a larger role in resolving the crisis, although Geithner said it would continue to play a central role.

"Of course ultimately these things only get solved by governments and central banks doing what's necessary," Geithner said.

The Fed joined with the ECB and other major central banks to ease dollar funding strains a week ago and Obama and Geithner have both pointed to the option of the ECB backstopping European governments and the banking system. That idea is viewed by many economists as the key to any comprehensive solution to the crisis, but has been resisted by Germany.

Geithner's comments came a day after ratings firm Standard & Poor's warned that it could downgrade 15 of the 17 euro zone countries, including the top-tier ratings of European economic powerhouses Germany and France, if they fail to reach a satisfactory agreement at the Brussels summit.

Geithner said he wanted to emphasize to European officials that their actions were important to the health of the U.S. and global economies.

President Barack Obama's administration is increasingly concerned that Europe's crisis will strike a substantial blow to the U.S. economy, halting still-weak job growth and potentially threatening Obama's hopes of winning re-election next November.

The U.S. Treasury chief said he saw some recent progress in Europe, including a plan for tougher euro zone fiscal rules floated on Monday by German Chancellor Angela Merkel and French President Nicolas Sarkozy

"I am very encouraged by the developments in Europe over the past few weeks, including the commitments made by the governments of Italy and Spain and Greece and the new steps we heard this week about progress towards a fiscal compact for the euro zone," Geithner said.

He added that the reforms would take time, and would require fiscal and central bank support for weaker states.

Geithner began his trip on Tuesday with meeting with the president of the ECB, Mario Draghi, in Frankfurt and the head of Germany's Bundesbank, Jens Weidmann.

On Wednesday, he will meet with Sarkozy and French Finance Minister Francois Baroin in Paris and with Spanish Prime Minister-elect Mariano Rajoy in Marseille. He finishes his trip in Milan on Thursday, where he will meet with new Italian Prime Minister Mario Monti, before the EU summit starts.

(Additional reporting by Glenn Somerville; editing by Patrick Graham and Tim Ahmann)

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