Geithner says could take 'years' for Europe recovery

(NEW DELHI) - US Treasury Secretary Timothy Geithner said on Tuesday eurozone countries have a tough road ahead of them and added it could take years for reform measures to "bear fruit."

Europe is "unlikely to be a support for the global economy for some years to come" even after new measures to combat the eurozone's debt problems and action by the European Central Bank to reassure financial markets, he said.

Geithner, who will attend an annual meeting of the International Monetary Fund in Tokyo at the weekend, was speaking to a business audience in New Delhi where he met Indian government leaders.

Geithner said the eurozone was on "a more promising path" to resolving its financial crisis, but added there was "a very hard road ahead".

"The reforms and strategies they have put in place will take years and years to bear fruit... and it is likely to be a very, very challenging growth environment in Europe for a long period of time," he said.

Geither said though that he was encouraged by reform efforts in Spain and Italy, which have been battling high borrowing costs as a result of fears about their finances.

"There are very important reforms underway in Spain and Italy, across Europe, to lay a foundation for better growth," he told a news conference earlier in the day attended by his Indian counterpart, Finance Minister P. Chidambaram.

These and other developments "offer a more promising path to a resolution of the crisis than we have seen to date", he added.

On Monday, the eurozone unlocked the 500-billion-euro ($650 billion) European Stability Mechanism that Luxembourg Prime Minister and fund chairman Jean-Claude Juncker called "an historic milestone in shaping the future of monetary union".

The permanent rescue fund, which had been initially due to enter service on July 1 but was delayed by a challenge at the German Constitutional Court, is not yet operational.

Last month, the ECB revealed its Outright Monetary Transactions programme, under which the central bank will buy up the sovereign bonds of debt-wracked countries under strict conditions.

By vowing to ride to the aid of countries like Spain by buying unlimited volumes of bonds to drive down borrowing costs, the announcement sent stock markets soaring as investors saw a turning point in the crisis.

Geithner added he was confident Washington would overcome its own fiscal crunch, after the IMF warned the United States it was facing a "fiscal cliff" and needs to shrink its huge fiscal deficit without sending the US and global economies into a tailspin.

"I am a great optimistic about the United States even though I am acutely aware of the challenges facing the economy," Geithner said, calling the US fiscal troubles "very manageable".

Chidambaram told the news conference India has "a deep interest in seeing the eurozone crisis being resolved".

"We know it will not be easy but it has affected exports and capital flows into India. At the (Tokyo) meeting we would like to hear from EU colleagues what they are doing," he added.