Ahead of the G-7 meeting in France later this week, the US has urged the European Union to take decisive action to prevent the further spread of the current economic crisis to other countries.

“For its part, Europe’s most important contribution will be to take decisive action to build a stronger firewall and prevent the further spread of the crisis to the larger European economies,” a Treasury Official told reporters.

“The EU summit agreed on July 21 to provide the European Financial Stability Facility (EFSF) with additional flexibility and that represents a major step forward for Europe’s crisis response,” the official said.

In the coming weeks, European leaders must implement those summit commitments in a way that shows markets that Europe will do what it takes to ensure that Spain, Italy and other large, vulnerable euro-area sovereigns can borrow at sustainable rates.

European efforts to provide liquidity to its banks and to recapitalise banks are also vitally important, the official said.

Europe needs to have the capacity to mobilise financing rapidly, efficiently and on a scale commensurate with the challenges of enhancing bank backstops, sustaining support for secondary market purchases and addressing the needs of large but vulnerable countries, the Treasury Official added.

“At the same time, Europe needs to ensure that the support can be deployed rapidly and without cumbersome, additional national approval mechanisms that could undermine the efficacy of these mechanisms,” the official said.

The Treasury official said there are a number of areas that European leaders have committed forcefully to address, which the US agrees is important.

“It’s extremely important to ensure that countries that are vulnerable to the decline in market confidence have assurances that they will continue to have access to financing at sustainable costs,” the official said.

“It’s very important that the banking system continues, as it currently has, to have access to the liquidity it requires and, where needed, where there are identified capitals gaps, that there is a set of robust bank backstops in place to address those as well as to provide support for continued secondary market purchases as needed, and finally, of course, to move forward on the programme countries with the commitments that have been made,” he said.

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