Europe must escalate its efforts to address economic crisis: US

Asserting that sovereign debt and banking stress in Europe are the most serious risks to the global economy, the United States on Wednesday said European leaders must escalate their efforts to address the economic challenges faced by the region.

Expressing dissatisfaction over the steps taken by Europe so far, a senior Treasury official on Wednesday came out with a set of four guidelines that European leadersshould take expeditiously.

"Global financial leaders are meeting this weekend against a backdrop of concerns about global growth, financial stability and market confidence and these issues will clearly be the centre of the agenda," a senior Treasury Official said on condition of anonymity.

"Sovereign and banking stresses in Europe are the most serious risks to the global economy and European leaders remain intensely focused on addressing these challenges," the official said, adding that Europe's strength and stability matters greatly to the United States' own recovery.

"To date, Europe has substantially escalated the response, but more is needed. There are four policy priorities that must guide the response going forward.

"First, the scale of the resources must be commensurate with the size of the challenges. Second, ECB and fiscal authorities must work in closer partnership to mount a collective response to the challenges, the official said.

"Third, sovereigns pursuing sound policies that are vulnerable must have access to affordable financing. Fourth, the Europeans have and must continue to show an unequivocal commitment to stand behind their banking system, to ensure

adequate capital and liquidity," the official added.

"Finally, as an integral part of this response, governments must pursue sound fiscal policies that will allow them to support long-term growth and pay their debts," he said, adding that the discussions this weekend will take place against a backdrop of markedly diminished growth projections, as noted this week in the IMF's World Economic Outlook.

"Facing these headwinds here in the US, we believe it's critical to take action to guard against a negative spiral. Growth is vital to bolster confidence, to create jobs and to help us achieve fiscal sustainability. This is especially critical at a time of reduced demand in the US and in other advanced economies," the official said.

Europe, the official said, is facing a set of challenges in terms of sovereign stresses and banking stresses that are both interrelated.

"We believe they're manageable. We believe Europe has the resources to deal with them, to deal with them decisively. If you look over the course of the crisis, there has been substantial institutional innovation in Europe that under normal circumstances would be considered quite impressive," the official said.

"But Europe also - the euro area in particular – is evolving a set of governance mechanisms that require quite a bit of work to produce parliamentary approvals across the many member states.

"And markets move very quickly relative to political systems; that's classic in all financial circumstances. And so they are working through a complicated set of challenges, but they're doing it with clear resolve.

"And again, we believe they have the capacity and they will muster that capacity," the Treasury Official said.