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Threat from Europe is dwindling

Eurozone pact, steps by central bank draw praise

Fed chairman Ben Bernanke (center) greeted Congressman Elijah Cummings of Maryland. Bernanke told the House oversight committee that Europe has made progress. J. SCOTT APPLEWHITE/ASSOCIATED PRESS

WASHINGTON - The nation’s top economic policy makers said Wednesday that although Europe’s long-simmering sovereign-debt crisis continues to weigh on growth, its threat to the US economy has diminished significantly in recent months.

Testifying before the House oversight committee, Ben S. Bernanke, the Federal Reserve chairman, and Timothy F. Geithner, the Treasury secretary, said Europe had made progress in assuring investors of the safety of the euro currency and ensuring market access for all eurozone economies.

As a result, strains on the global financial system have eased, and the outlook has brightened, they said.

“In the past few months, financial stresses in Europe have lessened, which has contributed to an improved tone of financial markets around the world, including in the United States,’’ Bernanke said.


Geithner said, “The European economies at the center of the crisis have made very significant progress.’’

In testimony Tuesday on the state of the international financial system before the House Financial Services Committee, Geithner said the European situation was far less worrisome than in late 2011, while emphasizing that it remained a threat.

The two officials said that the eurozone fiscal compact struck in January and actions by the European Central Bank - particularly its long-term refinancing operations, which provide cheap financing to cash-starved banks - had helped to ease distress among heavily indebted nations and shore up European financial institutions.

Bernanke also defended the Federal Reserve’s decision to pump dollars into the European financial system, about $65 billion now, to help combat the crisis. That move has helped strengthen the European and global financial systems and increase confidence, he said.

Bernanke said that he was confident there was virtually no risk that the United States would lose money on these dollar liquidity swap lines. “We’re not taking any credit risk,’’ he said. “We’re not taking any foreign-exchange risk. The chances of losing any money are very low.’’


The policy makers said the eurozone would nonetheless continue to depress US growth. Bernanke also said that while US financial institutions had substantially reduced their exposure to weak European institutions, potential weak spots remained.

Money market funds in the United States remain “structurally vulnerable,’’ he said, given that European holdings represent about a third of their assets.

He also said that although US financial institutions have limited exposure to the eurozone’s periphery - countries like Greece and Ireland - they retain more material exposure to the larger, core countries, like France.