It was the day of the big guns on Friday, and senior U.S. and European policymakers gave a lesson in how to disagree without being disagreeable.
Top officials including U.S. treasury secretary Timothy Geither, German finance minister Wolfgang Schäuble, his French counterpart François Baroin, and European Central Bank president Mario Draghi took to the main stage at the World Economic Forum to offer a generally upbeat message about the prospects for Europes debt crisis, seemingly determined to bolster the nascent confidence in financial markets. Yet they expressed, politely, significant differences on a few key issues, differences that explain why the debt crisis is proving so hard to contain.
A joint appearance by four European ministers underscored that Germany remains in the drivers seat in efforts to resolve the regions debt crisis. Schäuble insisted that Berlins prescription of tough fiscal austerity and structural economic reform was the only solution. He also took a swipe at George Soros, the financier who earlier this week contended that the austerity risked pushing Europe into a deflationary trap of economic decline and mounting debt.
I would like to tell him, if you want to create more growth, you cant deliver this only by spending more public money and increasing the deficits, the German minister said. If you want to have more internal demand, you have to deliver some confidence. If you reduce your deficit, if you make your deficit sustainable in Germany it works. It increases confidence.
Baroin and Luis de Guindos, the newly installed Spanish economy minister, echoed almost word for word the German stance that jointly financing euro nations debts with some form of eurobonds could be adopted only in the future, after reforms are in place and the back of the crisis is broken. And Olli Rehn, the European commissioner for Economic and Monetary Affairs, stressed that the commission was already enforcing the closer budget supervision that euro members have agreed to accept, having sent instructions in November to five countries Belgium, Cyprus, Hungary, Malta and Poland to tighten fiscal policy or face the threat of sanctions.
Even Mario Draghi got into the act. The European Central Bank president said the EU had made outstanding progress recently in agreeing on the outlines of a fiscal compact to enforce budget discipline and in seeing new governments in Athens, Madrid and Rome adopt economic reforms. If you compare today with five months ago, I think the euro area is another world, he said.
Still, there was some softly voiced dissent, especially on the idea of increasing the EUs soon-to-be created rescue fund, the 500 billion European Stability Mechanism. Schäuble rejected talk of more money, saying it would ease the pressure for serious reform in Greece. We must not give them the wrong incentives, he said.
But Baroin said France continued to push for a bigger fund, arguing, The higher the firewall, the less it has to be used. Geithner echoed that view in a separate appearance. He welcomed European moves to resolve the crisis but said, The unfinished piece is building a stronger and more credible firewall.
Geithner also showed no sign of dropping Washingtons opposition to a big increase in bailout resources at the International Monetary Fund. Europe has plenty of money it should bring to bear before turning to the IMF, he said.
Geithner gave a confident and relaxed defense of U.S. policy, helped no doubt by news on Friday that the U.S. economy grew at a 2.8 percent rate in the fourth quarter. Europes most significant data point was far bleaker, as Spain announced that unemployment rose to a staggering 22.8 percent in the fourth quarter.
Fridays appearances were largely for show. The real action is taking place elsewhere. In Paris bankers are negotiating terms of a debt restructuring that would avert a Greek default. Although Rehn expressed confidence that a deal would be struck this weekend, one senior banker closely involved in the talks said the two sides remained far apart. And EU leaders will hold another summit meeting in Brussels next week that is intended to finalize treaty changes for the new fiscal accord as well as completing the new bailout mechanism.
Leave it to Christine Lagarde, the managing director of the International Monetary Fund, to sum up the atmosphere.
Davos is lots of snow, a lot of meetings, a lot of people, a lot of buzz, all sorts of things, she said in an interview with Facebook COO Sheryl Sandberg that was streamed on the companys Facebook Live page. And not a very uplifting, cheerful mood at the moment, at least in my sector, she added.