US official: EU poses risk to US, global economies

Europe continues to present barriers to growth in the US and global economies, a top US Treasury official said Friday, citing the Cyprus crisis. "The risk of financial instability in Europe remains a risk to our recovery and the global economic outlook," said the official, who spoke on condition of anonymity ahead of Treasury Secretary Jacob Lew's visit to the European Union next week. "Recent events in Cyprus remind us that Europe continues to navigate a challenging path of fiscal and financial reform," the official said. The official noted the situation in struggling Cyprus, which struck a 10-billion-euro ($13 billion) bailout deal this week with the EU, the European Central Bank (ECB) and the International Monetary Fund. "We have been struck by many comments made by Europeans officials stressing the uniqueness of Cyprus and of course we also recognize that Cyprus has some very unique features," the person said. The senior US official underscored that many banks in Europe were large relative to the size of their home markets, and called on authorities to make further progress toward a common eurozone institutional framework. Such a banking framework, used for recapitalization, restructuring, resolution and deposit insurance, would create a "common backstop" to contain contagion risks. "The framework for oversight... within the euro area still is not commensurate with the scale and cross-border reach of the national banking sector." The US official also said it was "vital" to see rebalancing within the euro area, calling for surplus economies to contribute more to demand in order to ease adjustment in the periphery, "avoid austerity fatigue and renew Europe's economic vibrancy." Lew, in his visit to Europe Monday and Tuesday for talks with counterparts on the global and European economies, will notably meet with ECB President Mario Draghi.