"Over the course of the last eighteen months, the countries in crisis have put in place very tough and far-reaching reforms to address the underlying causes of the crisis," Geithner said in prepared remarks before the House Committee on Oversight and Government Reform.
"Greece has reduced its structural budget deficit, which measures the underlying deficit adjusted for the effects of recession on revenues and expenditures, by nearly 12 percentage points of GDP since 2009, according to the IMF," he added. "Ireland, Portugal, and Spain have reduced their structural deficits by between 4.5 and 5 percentage points over the same period. In Italy, where the structural deficit expanded by much less, the government has shaved off 1.25 percentage points of GDP. Each of these governments has further plans in place to move closer to a sustainable fiscal position over the medium term."
Bernanke says risk from Europe has eased
Rescue creditors: Greece may miss debt targets
Writttn testimony by U.S. Treasury Secretary Tim Geithner
Written testimony by Federal Reserve Chairman Ben Bernanke
Although these fiscal reforms have helped stem the financial contagion damaging Europe's economies, the bigger challenge is to boost growth and restore competitiveness in the region, Geithner said. To that end, he expressed support for the Italian government's recent move to revamp labor laws, and efforts by Greece, Ireland and Portugal to privatize parts of their economies and slash government pensions. Spain and these countries also are moving to fix their banking systems by recapitalizing large financial institutions, reducing the amount of bank loans relative to their deposits and encouraging industry consolidation, Geithner said.
At the same hearing, Federal Reserve Chairman Ben Bernanke concurred that threats from Europe's debt crisis have cooled in recent weeks. But he warned that U.S. banks remain significantly exposed to conditions in larger European economies, noting that American money-market funds remain vulnerable to a continuing decline in the region. Roughly 35 percent of assets in U.S. prime money-market funds are in European holdings.
"U.S. financial firms and money market funds have had time to adjust their exposures and hedge their risks to some degree as the European situation has evolved, but the risks of contagion remain a concern for both these institutions and their supervisors and regulators," Bernanke testified. "In particular, were the situation in Europe to take a severe turn for the worse, the U.S. financial sector likely would have to contend not only with problems stemming from its direct European exposures, but also with an array of broader market movements, including declines in global equity prices, increased credit costs, and reduced availability of funding"