By Andrea Sosa Cabrios –
MEXICO CITY — The United States and the Organization for Economic Cooperation and Development (OECD) called Saturday in Mexico City for higher firewalls as part of a massive financial anti-crisis mechanism.
Germany, however, stood by its position that no additional money is necessary.
The focus of debate became apparent even though the finance ministers and central bankers of countries belonging to the Group of 20 met behind closed doors in the Mexican capital.
“We still have to build the mother of all firewalls,” OECD Secretary-General Jose Angel Gurria warned. “It’s six months late, a year late.”
U.S. Treasury Secretary Timothy Geithner agreed that the European Union in particular needs to “put in place a stronger, more credible firewall.”
“It’s very important that large economies in Europe have a strong financial shield,” Geithner said.
Gurria and Geithner spoke to the Institute of International Finance — a group of 450 banks, insurance companies and other financial service providers — on the sidelines of the two-day G20 gathering.
German Finance Minister Wolfgang Schaeuble said that no more money was needed — rather, deeper structural reforms are now needed. “We are on the right course,” he said.
For Schaeuble, bigger firewalls could not solve the debt and competitiveness issues that led to the crisis, and they would discourage governments from implementing vital reform. The reforms that have been implemented in Greece, for example, are “highly painful” but necessary, he said.
Geithner said that the best way out of the ongoing crisis “is to commit to more than is necessary.” Experience shows that in such extreme circumstances “you want to move quickly and as aggressively as possible,” he said.
Gurria stressed that the cost of indecision “is enormous.” He noted that there was no “magic number” but estimated about 1.5 trillion dollars as the level needed to restore confidence between European firewalls and contingency funds at the International Monetary Fund.
“The thicker the firewall, the less likely it is we will have to use it,” he said.
He acknowledged that the figures are relative: “Trust in the system is what’s lacking today, not money.”
Geithner praised the European Union’s efforts to tackle its fiscal problems and preserve the euro currency, but said that there was more work to do.
“Europe is making incredible progress in convincing the world that they are not going to allow a catastrophic financial failure,” he said.
Geithner noted that European leaders “know they have more to do in making that commitment credible.”
Germany aims to rebuild confidence through tough measures.
“Higher walls can buy time, but time must be used to tackle the roots of the crisis,” Bundesbank President Jens Weidmann told the IIF Friday.
“This includes consolidation of public finances, structural reforms and better rules at the European level,” he said.
Debate on anti-crisis financial mechanisms is believed to be a central part of G20 meetings Saturday and Sunday in Mexico City.