Geithner suggests ECB guarantee bonds

WASHINGTON, Sept. 24 (UPI) -- U.S. Treasury Secretary Timothy Geithner said the European Central Bank should guarantee bonds from 17 eurozone member states.

Speaking in Washington at a conference of finance leaders at the International Monetary Fund, Geithner said, "The threat of cascading default, bank runs, and catastrophic risk must be taken off the table, as otherwise it will undermine all other efforts, both within Europe and globally."

The Washington Post said Saturday that Geithner has called for a stronger European Central Bank in several meetings in recent weeks.

Geithner has said the financial powers of a central bank is the only way to restore confidence in the marketplace.

In recent months, the ECB in Frankfurt, Germany, has been buying bonds from Greece, Spain and Italy to keep demand high and yields the governments pay on the borrowing low. But the ECB is hampered by a singular mission of taming inflation and board members are reluctant to continue buying bonds, the Post said.

Even with the green light to do so, buying bonds is not a solution without risk as the strategy could trigger a round of inflation.

One problem a bank with a broader agenda could solve is speed. Monetary policy that has to be agreed upon at the European Commission by 17 national leaders, then ratified in 17 national capitals takes time that has proven to be critical flaw in the current arrangement.

An Asian official who asked to remain anonymous said, Geithner had "hit the problem on the head with a sledgehammer."

British treasury chief George Osborne said, "What is required is a sense that there is enough government and central bank firepower," to restore confidence in investors.

Geithner's suggestion, however, could also be seen as one step closer to establishing a common tax for the eurozone, which would take constitutional changes in member states and in Brussels.