Global financial markets
May 27, 2010
US Treasury Secretary Timothy Geithner, fresh from talks with the president of the European Central Bank, Jean-Claude Trichet, and UK Finance Minister George Osborne, met Schaeuble in Berlin. He was keen to stress similarities between Germany and the US in their approach to financial regulation.
"It's important to recognize that the US and Europe are in broad agreement on the importance of putting in place more conservative restraints on risk-taking, more conservative capital requirements [for banks] and bringing transparency and disclosure to the derivatives market," Geithner told a news conference in Berlin.
Geithner praised Germany's leadership in the Greek debt crisis, but also reminded Schaeuble of Germany's responsibility, as Europe's biggest economy, to strive for a united EU front on regulation of the financial markets - a veiled criticism of Germany's decision last week to ban some forms of short-selling to rein in speculators.
Defending deficit discipline
Despite Schaeuble's assurances that the approaches to regulation of the US and Germany "are much closer together than is generally assumed," the German finance minister found himself defending Germany's tough stance on fiscal discipline.
"For a country with demographics that are not unusual in continental Europe, i.e. with a shrinking and aging population and potential growth of just 1 to 1.5 percent, we have to be more stringent when it comes to reducing our deficit than a country like the US, where growth is much more dynamic," Schaeuble told reporters.
The US is worried that tough austerity measures designed to reduce bloated budget deficits in the eurozone could stymie global growth. Geithner warned that the traditionally strong appetite of US consumers for products from around the world will "be less a source of demand for the world in the future."
He urged European countries to do more to boost growth, but that is more difficult for Europe than it is for the US.
"You can stimulate the economy if you have unlimited access to financial markets, like the US, as the US dollar is the reserve currency worldwide," Karsten Junius, head of capital research at DekaBank, told Deutsche Welle.
"The US doesn't face any constraints to borrowing in the markets, but the situation is very different in other countries," he says.
Levies and taxes
What the two finance ministers do agree on, is that the financial industry must contribute to the costs of the crisis.
A levy on banks' assets or profits is something both governments are pushing. But during his meeting with Schaeuble, Geithner did not comment on a so-called transaction tax proposed by Germany, which would apply to every sale and resale of a financial product. The fear in the US and in the industry is that it would be counter-productive.
"It would definitely reduce liquidity in certain markets," Junius told Deutsche Welle.
"Some people say liquidity is harmful, but I see central banks intervening in the markets to make them more liquid. So drying up liquidity with a transaction tax can be harmful," he said.
G20 leaders are set to meet in Toronto, Canada, June 26-27 to thrash out a regulatory framework for the global financial markets.
Geithner insists preparations for the meeting are going well and that the world "was in a very good position to to put in place a much better system than we had going into this crisis."
Author: Nicole Goebel
Editor: Susan Houlton