Geithner Finds Europe's Leaders as Unwelcoming as Its Markets

I never thought I would feel sorry for Timothy Geithner, but he got some shabby treatment from European finance ministers meeting in Poland to try to keep their financial system from collapsing. They invited Geithner, the U.S. Treasury secretary, to attend and then told him to keep his opinions to himself and not to lecture them on fiscal or economic policy. As for their own policymaking, well, they had no intention of doing any with an outsider in their midst.

Here is what Austria's finance minister, Maria Fekter, had to say, as relayed by the Washington Post: "I found it peculiar that even though the Americans have significantly worse fundamental data than the euro zone, . . . they tell us what we should do."
Their Lips Are Sealed
And there was this pleasant remark from Jean-Claude Juncker, prime minister of Luxembourg and chairman of the finance ministers' group: "We are not discussing the expansion or increase of the [financial stability fund] with a non-member of the euro area."
It's not clear what the point was of having Geithner log the frequent-flier miles. Maybe the Europeans expected him to bring the Treasury's checkbook and make an effort to get them out of their fix, but effectively his colleagues did just that some hours earlier when the Federal Reserve said it would provide dollars to enable European banks to keep operating.

The Incredible Shrinking President
The diplomatic roughing-up shows that President Obama's stature is just as low abroad as it is at home. More important for global financial markets, it also shows that Europe's cranky, dyspeptic leaders have no clue how to put their affairs on the right track.

Geithner's management of the economy since his boss came into office has not been very effective, as chronically mediocre data have shown. His stewardship has failed to inspire confidence among businesses, consumers or homebuyers.

But what he told the finance ministers made sense. He encouraged them to allow the European Central Bank to expand the European Financial Stability Facility, the program set up in 2010 to try to rescue euro-area states struggling with excessive debt.

Great Idea, Way Too Late
Bailouts have had a spotty record in the last few years, but this one seems to have a better shot of working than Europe's present prescription: stringent belt-tightening. That would have been a fabulous idea 30 or 40 years ago, before high taxes, large state bureaucracies, nationalized industries and a culture of political patronage discouraged growth, productivity and entrepreneurship across southern Europe.

An economic and political overhaul would do the long-term health of Europe a world of good, but first Europe has to get through a very dicey short term. A strict austerity regimen, the sort that the International Monetary Fund used to impose with limited success on indebted developing countries in the 1980s, would do more harm than good now.

So what's the right answer for Europe, if there is one, and what should investors do? Come back Wednesday for some answers.