While testifying before the U.S. Senate in recent days, a Federal Reserve official defended the decision for the Fed and central banks from two other continents to try to help the European Union amid a debt crisis that threatens to hurt the economic rebounds of itself and trading partners alike.
Steven B. Kamin, director of the Fed’s Division of International Finance said in prepared testimony that measures taken in November, including the expansion of swap lines for European banking institutions, were a help not only to those receiving the aid, but business in nations backing the assistance. These include the United States, Japan, Switzerland, the United Kingdom as well as the European Central Bank. Kamin said the spillover from problems with the high-debt nations, most the “PIIGS nations” (Portugal, Ireland, Italy, Greece, Spain) would have caused greater problems, including tougher credit conditions, in the United States and Japan without the aid in the form of monetary policy.
However, it’s worth noting, Kamin’s speech wasn’t a virtual pep rally to decree that all crises had been averted:
“Many financial institutions, especially those from Europe, continue to find it difficult and costly to acquire dollar funding, in large part because investors remain uncertain about Europe's economic and financial prospects. Ultimately, the easing of strains in U.S. and global financial markets will require concerted action on the part of European authorities as they follow through on their announced plans to address their fiscal and financial difficulties. The situation in Europe is continuously evolving. Thus, we are closely monitoring events in the region and their spillovers.”
Brian Shappell, NACM staff writer