PARIS: US Treasury Secretary Timothy Geithner said Thursday he saw “durable, very important signs” of recovery in the financial system — but he warned against repeating the mistakes of the 1930s and withdrawing stimulus too soon.
Geithner, in Paris on the last leg of a tour that has taken him from London to Saudi Arabia and the United Arab Emirates, acknowledged he was keeping up pressure on foreign governments not to slacken in their efforts to resuscitate the global economy.
“Probably why I’m doing this (tour) is to make sure we keep working with governments around the world to continue to provide enough support to lift this global economy back to a sustained pattern of growth,” he told reporters.
“We are not going to repeat the classic mistakes the US made in the 30s,” by “at the first sign of hope hitting the brakes prematurely.”
Decisions to tighten monetary policy and control government spending in 1937 under US President Franklin Roosevelt are widely believed to have helped snuff out a recovery in the midst of the Great Depression that followed the 1929 stock market crash. With hindsight, Geithner said that today’s leaders should have moved more quickly to support demand as the crisis intensified. But he told readers of Les Echos newspaper in an online chat that policy “has been effective” in staving off the worst.
Signs it is working include new capital coming into the US financial system, the improvement in credit markets, and the beginnings of improvement in consumer and business confidence, he said. “We are seeing what I believe are durable, very important signs of not just adjustment and restructuring of our financial system but greater confidence and stability of the system,” he told reporters after a meeting with French Finance Minister Christine Lagarde and Prime Minister Francois Fillon Thursday morning.
Lagarde said they talked about putting “more security, more discipline” in banking supervision, accounting standards, executive pay, and tax havens.
“We were in agreement on a large number of these questions,” but differed on some technical points regarding banks’ leverage and capital ratios, the French minister said.
To reduce the possibility of a future crisis, Geithner said the world needs more conservative capital requirements, stronger safeguards and better tools for managing the failure of large, complex institutions.
Geithner discussed economic stimulus plans in his talks with the French prime minister. Fillon’s office said the two men reviewed the size and efficiency of different plans to help the economy during the downturn and, looking forward, discussed the scheduled G20 meeting in Pittsburgh this September.
Asked to judge European stimulus efforts, Geithner said they had been “quite substantial so far.
“The challenge for all of us is that we do enough,” he said. “This is likely to require a sustained program of support for demand and for financial repair.” He said it’s too early to tell whether more stimulus will be needed in the United States.
