Europe's debt crisis is slowing global growth and creating uncertainty that is sapping equity markets in both the United States and Europe, a senior U.S. Treasury Department official said on Tuesday.
The volatility in financial markets has reduced risk appetite, undermined business and consumer confidence, jeopardized the availability of credit, and reduced household wealth in the United States as well as in Europe, said Charles Collyns, Treasury's assistant secretary for international finance.
Collyns' prepared testimony for delivery to a subcommittee of the U.S. House of Representatives' Financial Services Committee was posted on the committee's website.
European officials met at the weekend to consider how to shore up the region's finances and build a firewall against potential debt contagion and are to hold another summit on Wednesday to try to agree on specific measures for doing so.
Collyns said the U.S. financial system's direct exposure to the European countries that are under most stress was moderate, but added we are concerned about risks from our substantial trade and investment ties with Europe.
While direct exposure to the eurozone periphery is very limited, U.S.. banks' exposures to the core European banks are much larger and these banks are the primary international lenders to peripheral European borrowers, Collyns noted.
He said it was hard to quantify precisely all possible exposures but the fact that there is a degree of interconnectedness among banks means that any credit disturbances can lead to losses in liquidity and potentially to disruptions of international financial markets.