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Analysis
Geithner’s Polish journey shows how euro has become a political football for US and Chinese

Geithner’s Polish journey shows how euro has become a political football for US and Chinese

by David Marsh

Mon 19 Sep 2011

He came, he saw, he castigated.

What a pleasingly lordly duty for the American treasury secretary to turn up in Poland and rebuke the finest of Europe’s finance over their painful failure to resolve the euro debt crisis.

Forty years after John Connally, Treasury Secretary under President Richard Nixon, famously told European finance ministers in Rome the dollar was “our currency but your problem”, Tim Geithner says the euro has become a problem for the whole world. Connally’s heir lectured the latest generation of finance ministers in Wroclaw on Friday that they should stop squabbling with the European Central Bank and curb a “catastrophic risk” to financial stability.

As bickering intensified in Germany’s governing coalition over ways out of the mess, Geithner’s Polish journey underlines how the euro has become a political football kicked around by the US and China. The world’s two largest economies are taking predictably different lines. While the indebted Americans urge more borrowing, the creditor Chinese say: “Follow the Bundesbank.” Guess which mentor is proving more popular in Germany. The ECB’s action last week joining forces with forces with four other central banks – including the Federal Reserve – to provide dollars for liquidity-starved European banks is a sensible palliative but cannot by itself solve the crisis.

Only too keen to distract attention from his own problems, Geithner travelled to the once-German city of Wroclaw to indulge in Schadenfreude. Only two days previously, Chinese premier Wen Jiabao, too, reminded the Europeans of their vulnerability. But he took an ostensibly more constructive approach, saying Beijing was willing “to extend a helping hand and increase our investment,” but demanding political concessions on trade.

With friends like these, who needs enemies? There’s enough of the latter in Berlin. Both Chancellor Angela Merkel and finance minister Wolfgang Schäuble have rounded on hapless economics minister Philipp Rösler, leader of the junior Free Democrat coalition partners, for daring to suggest that Greece should opt for “orderly bankruptcy”.

Germany is likely to take comfort from Wen’s strong indications that Greece should sort out its problems rather than ask the creditor countries for more money. In what seemed like a text from the Bundesbank’s invariably rigorous monthly bulletin, Wen said on Wednesday, “Countries should fulfill their responsibilities and put their own houses in order.”

Geithner’s imperial strictures, meanwhile, had no discernible effect on Europe’s crisis-solving ability. He put forward a number of solutions including “leveraging” the EFSF rescue fund to give the Europeans more firepower to fight financial markets.

But he got a frosty response from the European creditors. In Poland on Friday, the spirit of John Connally was alive and kicking. The Treasury secretary’s intervention in Rome 40 years ago formed the prelude to the Smithsonian realignment of world exchange rates decided in Washington in December 1971, when the D-Mark was revalued by 13.6% against the dollar. Probably a similar shake-up is needed now, with the euro moving higher against the dollar and emerging market currencies, after the weaker members of monetary union depart. Not an easy step to take, but a necessary one. Let us see whether it becomes reality.

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