The U.S. Treasury Secretary Timothy Geithner, according to the congressional testimony released today, said that Europe still needs a long period of time to achieve fiscal sustainability, warning that indebted nations don't need to depend on heavy austerity to fix budgets on fears those measures might weigh heavily on the pace of growth.
In remarks prepared for delivery to the House Financial Services Committee, Geithner said economic growth is likely to be weak for some time. The path of fiscal consolidation should be gradual with a multiyear phase-in of reforms.
If every time economic growth disappoints, governments are forced to cut spending or raise taxes immediately to make up for the impact of weaker growth on deficits, this would risk a self-reinforcing negative spiral of growth-killing austerity.
Most European nations have adopted austerity measures to fix budgets and return on the right track of recovery, especially those highly indebted; however, Geithner clarified that the economic reforms adopted by nations to successfully support the effort of fighting the crisis, lawmakers must also focus on finding a mix of financial support and fiscal consolidation.
The reforms will take time and they will not work without financial support that enables governments to borrow at affordable rates and keeps the overall rates of interest across the economy at levels that won't kill growth, said Geithner.