. the committee will come to order. the oversight committee mission statement is that we exist to secure two fundamental principles, first, americans have a right to know the money washington takes from them is well spent. and second, americans deserve an efficient, effective government that works for them. our duty on the oversight and government reform committee is from text these rights. our solemn responsibility is to hold government, i repeat government accountable to taxpayers because they have a right to know what they get from their government. our job is to work tirelessly in partnership with citizen watchdogs to deliver the facts to the american people and

genuine reform the federal bureaucracy. today's hearing is most important because, in fact, since 2009 europe has been struggling to emerge from a severe sovereign debt crisis brought about by massive government spending and a weak economy. america kosai the same that we in fact have been struggling since 2009 to emerge from a severe sovereign debt crisis and a massive -- brought about by massive government debt and in fact a weak economy. but that's not the issue today. the issue is not america's economy or sovereign debt the issue is if the european union and international monetary fund spend hundred of euros to aid greece, ireland, portugal and

will america be drawn into this problem. can america afford one sovereign debt crisis such as greece? i believe after over a year of watching the greece on again off again crisis there's a certain assumption that eventually it will be solved, a certain assumption that we know what we're doing, a certain assumption that, in fact, it will in time be solved. clearly this hearing which builds on the good work of chairman patrick mchenry is, in fact, to ask a greater question. the greater question is what if we go beyond greece? assumptions are that between hedging and in fact other means that the problem is manageable. our obligation is to say what if it's not. our witnesses today are the two most important individuals at the center of this.

our fed chairman, certainly has a good understanding of our economy, what the fed's capabilities are, and ultimately what he can do if, in fact, things go wrong. secretary geithner who has been a loyal servant of the american people both at the federal reserve in new york and now in his current position also has been intimately involved in both the u.s. crisis and in matters in europe. so today our primary questions will be, in fact, on what u.s. exposure truly is. what the impact the taxpayers could be. we will try not to look to the past. we'll try to look to the future. but let us understand that while we have a budget deficit of more than a trillion dollars, will our debt in the united states is 100% of gdp, will in fact we're

still remembering the good and the very bad of t.a.r.p., still remembering both the individuals before us today came and were involved in saying what t.a.r.p. would be spent for none of which came to pass. ultimately as secretary geithner has recently said he does not plan on needing a bailout, he does not anticipate it. our obligation on this committee is to anticipate and to plan, therefore the questions today for our two esteemed witnesses will be what is plan b? i repeat, what is plan b if what you're managing is not manageable. with that i would like to recognize the ranking member for his opening statement. >> thank you very much for calling this hearing. i want to say to you secretary geithner and chairman bernanke i want to thank you for your service to our country and want to thank you on behalf of a grateful congress and grateful nation. this is a very important issue

addressing the financial issues in europe and the lessons that can be learned. since the last hearing we held european officials have taken decisive action to re-establish financial capability in the eurozone. american officials have helped diplomatically through consultation, through participation in the imf and central bank support. nobody is declaring mission accomplished but the signs of improvement are difficult to miss. some in the majority see the euro crisis as a justification for imposing extreme austerity measures here at home. yesterday the house republicans released a budget proposal to cut $5.3 trillion over the next ten years to end medicare as we know it and shift costs on to seniors and give further tax breaks to corporations. today the majority will seek to draw parallels between greece's

financial troubles and those of the united states. in our last meeting a majority witness called greece quota wake up call arguing that the united states should shred our nation's safety net and cut taxes to avoid greece's fate. don't believe it. while strong medicine is needed, it is the banks that caused the financial crisis who should be taking the hit. what we have learned from greece is that austerity measures imposed during an economic downturn have very real negative consequences for working people. hard-working people. while they leave economic elites unscathed. some believe we should form austerity measures in the form of deep spending cuts. secretary geithner on past occasions, you warned against such action. for example you said this and i quote. we need to stay intensely

focused on strengthening our economy in the short term. we can't cut our way to growth. severe austerity now would be very damaging, end of quote. but how republicans have ignored this key point. different problems require different solutions. in the case of the united states, economists largely agree that the housing bubble and risky investment products created by wall street were the chief causes of our economic collapse as mark zandi chief economist stated housing is ground zero for the economy's problem, high unemployment and lost jobs. although the recent $25 billion settlement with five of these banks is commendable, the sad truth is that millions of borrowers will not receive the relief they so desperately need because one important entity refuses to cooperate. the federal housing finance

agency fhfa, fannie mae and freddie mac's regulator will not allow them to participate in the settlement reportedly because much of the relief will be in the form of principle reductions. if we want to ensure our economy at home is strong enough to weather the euro crisis or turbulence from slowdowns in other foreign economy, we must end the housing crisis here at home. we must have principle reduction as one tool for borrowers who are under water and who owe more than their homes are worth. in many cases through no fault of their own, by the way. f fhfa's shows it would save taxpayers billions of dollars. the acting director maintains what happens to be an illogical opposition. it's my hope as we examine the euro crisis we keep in mind what should be our ultimate goal.

rebuilding and protecting a strong economy for the millions of middle class americans in the united states. mr. chairman, with that i ask unanimous consents to enter the march 20th "the washington post" article entitled "the man blocking america's recovery" into the record. >> i would reserve -- how is it germain to today's hearing? >> this addresses this issue. >> we can include it as extraneous material but it was germain to the hearing we had in new york and suggest it be placed in the record for that hearing. >> we now go to the chairman of the subcommittee, mr. patrick mchenry for his opening statement. >> thank you, mr. chairman and thank you for calling this hearing today. nearly four years ago americans witnessed domestic and global markets deteriorate. resulting in millions of job losses and unprecedented

measures by governments and central banks to prop up financial institutions. as the united states economy remains vulnerable in the midst of a very shaky recovery just across the atlantic our european friends fight to fend off a second wave of economic financial turmoil. their lesson is one for the world as well as the united states. in december my subcommittee invited officials from the federal reserve to explain the economic unrest from europe and what actions they would consider in reaction to it and what measures remained at their disposal as events changed day-by-day. daily headlines read of liquidity injections of billions and trillions of euro, swing stock markets widely.

in december the ecb held a second auction known as a long term refinancing operation to provide banks with cheep loans and a credit event was declared in greece. the credit event in greece is one of particular concern to markets around the world. as we look ahead, the european story is far from over. european leaders continue to strengthen the weak framework of the eu to substantiate their rescue efforts and financial markets become more dependent on continued willingness of the central banks to use their balance sheets to rescue the global economy. understand that the economic storm facing europe influences u.s. markets, i commend chairman issa for inviting chairman bernanke and treasury secretary geithner here to congress to address this critical issue. i'm interested to hear how our nation's foremost economic experts and authorities view the

eurozone crisis, impact it can have on the united states economy and, you know, our pension funds and market participants as well and with that i would like to yield the balance of my time to the former chairman, mr. burton. >> thank you. i thank the gentleman for yielding. the chairman said in his opening remarks that he wanted to find out if the united states possibly could be drawn into the euro crisis. i've been to europe. i've been all over the place over there including brussels and i'm convinced we're already drawn in. so i would like to find out today how deeply we're drawn in and how severe the problem could be especially if the euro is devalued. i want to find out if we're underwriting or bailing out the europeans and to what extent. when i was in brussels i found out that in addition to us printsing money with qe1 and qe2

the central bank is doing that well. they are inflating their money supply. the things i would like to know are first of all when my colleague talked about the money swaps -- let me first say acdorgd the congressional research office our exposure to greece, ireland, italy, portugal, spain and france and germany is $641 billion for those and france and germany $1.2 trillion. there's that exposure already. and regarding the currency swaps, with the european central banks, including canada, switzerland, japan and the united kingdom, we have as of february 15th, $109 billion is outstanding on those lines. as i said before if there's a devaluation of the euro what does that do to our exposure and how much will that cost the united states? in addition to that, treasury

secretary geithner has dismissed reports that we might participate in a special imf european aid fund and i would like to know if that's accurate and if that's going to be true in the future. and the president, the obama administration indicated that or increased our contribution to the imf which is currently 17% of the imf's overall budget and the imf has indicated it will need another $500 billion. and so what i want to find out is how much exposure are we facing right now and how much exposure are we likely to have added on to us and are we going to be underwriting the european financial crisis and what impact that's going to have on the united states of america. thank you, mr. chairman. >> i thank the gentleman. i thank both the subcommittee chairmen on t.a.r.p. and financial service and our former full committee chairman. with that we go to the ranking member of the financial services

and t.a.r.p. smet mr. quigley for five minutes. >> thank you, mr. chairman. today's hearing as we know builds on two previous hearings we held before t.a.r.p. subcommittee of which i'm honored to be the ranking member. today's hearing will examine the european debt crisis and what it means for the u.s. taxpayers and our economy. as mr. eliot of the brookings institute testified in december in 2010 our exports to eu totaled 400 billion. we have 1 trillion of direct foreign investment in the eu. the global market is not what it was ten years ago or for that matter five years ago. the complexity of the market is such that there can be no question a healthy european economy is in the best interest of the united states and the american taxpayer. the plain truth is when the earthquake of a financial crisis hits, every nation feels it's after shocks. including here at home. that's why i'm encouraged by the work secretary geithner and chairman bernanke have done to

engage the eu. i'm cautiously optimistic by the steps taken by europe since our subcommittee hearing in an effort to add is a fwoilt the european financial system. european leaders created a fiscal compact under which 25 nation staegts agreed to new rules aimed at controlling deficits. and greece recently restructured its debt. the european central bank has also worked to contain the crisis by purchasing bonds and providing loans. these recent actions have lessened the pressure on our financial market here at home. however it's important to recognize that the eurozone has a long and challenging road ahead. countries like greece, italy and others need to implement a balanced approach to their short and long term challenges. some likened our economy to greece's but i believe the u.s. unlike greece controls its own destiny. we need a balanced approach to get our own fiscal house in

order. we have to put everything on the table but we also have to ensure in reducing the deficit we don't torpedo our recovery. the truth is that the mission of government matters, but reckless decisions made it harder to fulfill that mission. we cannot allow politics to get in the way of what is right. we need to take a balanced approach both in spending and revenue generating measures. reality is now is not the time to pull the rug from those who need the help the most. but a long term deficit reduction plan is not incompatible with economic growth. we must not forget politics not economics nearly saw the u.s. government default on its debt in early august. we cannot allow politics to stan in the way addressing the home foreclosure crisis, ensuring our nation's seniors have health care and low-income children have food to eat. as ranking member cummings addressed in his statement

strengthening our economy must be our number one priority and we can't forget about the essential links between the testimony from the secretary and the chairman on this important issue. thank you, and i yield back. >> i thank the gentleman. before il introduce the witnesses, i want to caution the committee, it is our policy when we invite guests, and i joke with them both beforehand, to tell them what the committee hearing is about, to expect that they will have answers for our questions, not just answers irrelevant of our questions. but at the same time, they have an expectation that today's hearing is primarily and technically exclusively about the european debt crisis and how it might affect america. so although b there's a ripple effect and you may want to the ask broader questions, if you ask questions that are not germane to the subject, it will be theier to s

prepared or not prepared to answer them. we want our witnesses to be fully prepared. we only asked them here under that fairly narrow set of circumstances. now, of mr. secretary, mr. chairman, you're very good beyond na. so i won't be surprised that you may choose to answer questions. but i'm cautioning all of our people that you're our guests. we do not intend to have you ask questions and expected to answer them if they're well outside the scope of today's hearing. with that, pursuant to our committee rules, all witnesses must be to take the oath. thank you. do you -- please race your right hands. do you solemnly swash or affirm that the testimony you're about to give will be the truth, the wohl truth and nothing but the truth? let the record reflect all witnesses answered in the affirmative. please take your seats.

a little bit like yesterday with secretary chu, we would like to you stay as close to five minutes as possible. we'd like you to know that your opening statements of course, are placed in the record in their entirety along with extraneous material you may choose to enter after the hearing and with that, you know, i'm not sure we did a coin toss. i'll go from left to right. mr. secretary, you're recognized for five minutes or as you need it. >> thank you, mr. chairman. and ranking member cummings and members of the committee. thanks for giving me a chance to talk to you today about the crisis in europe and its risks for the united states. this has gone on for more than two years, of course. we welcome the attention you're bringing to this important question. europe is a key strategic and economic partner of this country. and we have an enormous stake in the success of europe's efforts to avert a catastrophic financial crisis. our economy is gradually getting stronger but of course, we still face a lot of tough challenges

here in the united states. among those course, unemployment still very high. housing market still very weak. we still have the long way to go to repair the daniel caused by our crisis but we also face a challenging and uncertain global economic environment with the risks around iran adding to upward pressure on oil prices and europe facing a long and difficult crisis. europe, the euro area accountses for about 18% of global gdp. it's the major source of financing for many emerging economies and accounts for with 15% of u.s. exports of goods and services but a handler portion of the exports of many of our trading partners. when growth slows in europe, it affects growth around the world. when the fears of a broader european crisis have been most acute as they were in the summer and fall of 2011 and earlier in 2010, financial markets fell around the world damaging confidence and slowing the

momentum of recovery here in the united states and around the world. now over the past few months, with our active encouragement and support, europe's leaders have put in place a more comprehensive strategy to address the crisis. this strategy has the following key elements -- first, it involves economic reforms very tough reforms in the member states to restore fiscal sustainability to restructure, recapitalize banking systems to improve the competitiveness and growth prospects of their economies. second it includes broader reforms to the institutions of europe including the fiscal compact that establishes stronger disciplines on the fiscal policies of the member states to limit future deficits and debt as a share of gdp. it involves a accord fated strategy to recapitalize as you said the european financial system with government-back stops for funding. and it involves a fire wallful financial fire wall of funds to provide financial support to governments that are undertaking

reforms so they can help retain access to financing on sustainable terms. now, these reforms have been aided by a number of actions by the european central bank and together, these efforts have helped calm financial financial tensions somewhat. but europe is still at the initial stages of what will be a long and difficult path of reform. and for these reforms to work, policymakers in the euro are going to have to carefully calibrate the mix of financial support and the pace of consolidation, fiscal consolidation ahead. these reforms, these tough economic reforms are not going to work without financial support that enables governments to borrow at affordable rates and if every time economic growth comes in weaker than expected governments are forced to cut spending or raise taxes to compensate for the impact on deficits, this would risk a self-reinforcing negative spiral of growth-killing austerity.

the most important unfinished business of this broader financial strategy in europe is to build a stronger financial fire wall. the european leaders are now reviewing options for how to expand the combined financial capacity of their two funds so they can make it clear to markets that they have the resources available on a scale that is commensurate with the needs they might face were the crisis to intensify in the future. as you know, the imf has played an important role in europe. provided advice on the design of reforms, a framework for public monitoring of progress, and financial support for programs in greece, ireland and portugal. that will financial support has come alongside a much larger amount of financial support from the european nations themselves as is appropriate. it is in the interests of the united states that the imf continues its efforts in europe but the imf's resources cannot substitute for a strong and credible european fire wall. the imf has played a major role

in every major post-war financial crisis. while consistently returning to the united states any resources with interest that is temporarily drawn upon. backed by very strong financial safeguards and in more than 60 years of experience dealing with financial crises we have never lost a penny. over the past 18 months, the crisis in europe has taken some of the wind out of our recovery. we encouraged by the progress they have been making. we hope they're able to build on these efforts to put in place a more durable foundation for economic growth and a stronger financial fire wall. we do not want to see europe weakened by a protracted crisis and will continue to work very closely with them and with the imf to encourage further progress. thank you. >> thank you, mr. secretary. chairman bernanke. >> thank you, chairman issa and ranking member cummings. as you know for about two years, developments in europe have had an important influence on global

financial markets and the global economy. high debts, large deficits and poor growth prospectes the led to big increases in borrowing costs, first for greece but subsequently for other countries, as well. and pescy mix about countries fiscal and economic situations has undermined confidence in the strength of european financial institutions. this has had an impact on the u.s. economy. the european union accounts for about one-fifth of u.s. exports of goods and services and we have seen those exports underperform and, of course, europe also affects the rest of the world. financial strains have been evident during times when financial conditions in europe were at their most turbulent. we saw a global retreat from riskier assets. notice united states those risks increases the cost of issuing corporate debt and affected consumer and business confidence. we've also seen our own financial institutions thought to have the substantial

exposures to europe see their stock prices fall and their credit spreads widen. we've seen some improvement financial stresses in europe have lessened in recent months which has helped improve the tone of markets around the world including in the united states. several actions by european policymakers have contributed, first the actions by the european central bank to undertake two longer term refinancing operations that helped european banks lock in funding. the european banks in turn have increased their holdings of sovereign debt which have lowered borrowing costs for some countries. secondly, euro area leaders including the greek government and private sector holders of greek debt have been taking steps to put greece on a more sustainable fiscal path. with the debt reduced, the imf have pledged a considerable