Geithner Offers Praise for European Fiscal Moves

LONDON (May 26) -- U.S. Treasury Secretary Timothy Geithner said Europe's $1 trillion plan to bolster faltering confidence in the continent's most vulnerable governments "has got the right elements" even as he urged further action to calm jittery financial markets.

Geithner arrived in London for the first in a series of meetings with European leaders over financial reforms, just as the European Union unveiled a new round of banking regulations that would tax European banks to create a fund for shoring up struggling banks in the future.

On Tuesday European stocks in the FTSEurofirst 300 index hit a nine-month low amid fears that the Continent's debt problems would remain unsolved. Despite continued market uncertainty, stocks recouped those losses today as the contours of new austerity measures in Italy, Spain and Britain became clearer.

The new British chancellor, George Osborne, who met with Geithner today, recently announced his government's $8.9 billion in planned spending cuts for the current financial year. The U.K.'s new Conservative-led coalition seeks to deliver on recent campaign promises that it would cut the country's soaring debt, which now stands at around $225 billion, while ring-fencing certain crucial services like health care.

Geithner described the new U.K. coalition's planned spending cuts as a "compelling fiscal plan," adding that the plan struck an important balance "between tackling the deficit and encouraging growth."

In Italy, Prime Minister Silvio Berlusconi announced his own series of spending cuts today, which amount to around $29 billion, according to The Associated Press. This came despite his repeated assurances last month that Italy could avoid painful measures to reduce public debt.

The Italian spending reductions will seek to cut the country's deficit in the next year or so down to 3 percent of gross domestic product, the often cited topmost limit for countries belonging to the eurozone. According to Reuters, the Italian cuts may include reducing the number of state employees and freezing the salaries of those who remain. Renato Brunetta, a minister in Berlusconi's government, told Italian television today that there had been "enough uncontrolled costs of the state."

Spain was another cause of market jitters this week when its government intervened after the collapse of an attempted merger between two regional savings banks. Prime Minister Jose Luis Rodriguez Zapatero hopes to slash his country's deficit with $18.3 billion in cuts, according to the AP, and today announced a new tax on the highest bracket of earners. His Socialist government had already promised unpopular freezes in public sector pay, but Zapatero said this top-earner tax "will not affect 99.9 percent of Spaniards."

Geithner also met today with officials from the European Central Bank, and in a news conference at 10 Downing Street in London, he stressed the need for a unified approach to regulation, both inside the European Union and beyond. This was an apparent criticism of recent actions in Germany, which on Tuesday proposed unilateral regulations on the short-selling of stocks, a move that did little for market confidence.