* Geithner presses euro zone leaders for decisive action
* Meetings with Sarkozy, new leaders of Italy, Spain
* US Treasury chief has IMF influence
(Updates with Geithner leaving Draghi meeting)
By David Lawder
FRANKFURT, Dec 6 (Reuters) - U.S. Treasury Secretary
Timothy Geithner arrived in Germany on Tuesday for a three-day
blitz of euro zone officials to urge them to take decisive
action to backstop their currency union and resolve a crushing
Geithner will press French President Nicolas Sarkozy, the
new leaders of Spain and Italy and Germany's finance minister to
agree at a crucial European Union summit on Friday to take steps
that will give markets confidence that no euro-zone countries
will default, and that the region's banks will stay solvent.
Geithner has made several trips to Europe in recent months
as U.S. concerns over the crisis grow and, judging by comments
from both him and President Barack Obama, the Treasury Secretary
may add to a growing chorus calling for the European Central
Bank to take more decisive action to resolve the crisis.
The need for action was underscored by Standard & Poor's
warning on Monday that 15 of the 17 euro zone countries now face
an unprecedented mass downgrade if they fail to reach a
satisfactory agreement at the Brussels summit -- all the way up
to AAA-rated Germany and France.
Obama's administration is increasingly concerned that
Europe's crisis will strike a substantial blow to the U.S.
economy, halting still-weak job growth and potentially
threatening Obama's re-election hopes.
The Federal Reserve joined with the European Central Bank
and others in action to ease dollar funding strains a week ago
and Obama and Geithner have both pointed to the option of the
ECB backstopping European governments and the banking system.
That idea is viewed by many economists as the key to any
comprehensive solution to the crisis, but resisted by Germany.
"With this trip, I think the Secretary will bring the
message that time is running out and this is the last chance the
Europeans have to fix the situation before we have a full- blown
systemic crisis," said Domenico Lombardi, a former International
Monetary Fund board member who is now a scholar at the Brookings
Institution in Washington.
"I think the U.S. tone will be much more firm - it has
changed from being more interlocutory to more authoritative,"
Sarkozy and German Chancellor Angela Merkel to enforce
budget discipline across the euro zone. Their proposal,
announced on Monday, includes automatic penalties for states
that fail to keep deficits under control and an early launch of
a permanent bailout fund for euro states in distress.
"In the end, the Europeans hold their fate in their hands,
but the problem is their fate is our fate," said Edwin Truman, a
former adviser to Geithner at the Treasury who is now a senior
fellow at the Peterson Institute for International Economics in
"There's no doubt that their futzing around for the last two
years has adversely affected the U.S. economy -- and the world
economy. One cannot say that too strongly," Truman said.
The U.S. Treasury chief began his trip by meeting
European Central Bank President Mario Draghi. He declined to
comment on the talks on leaving the ECB, where he spent more
than 1-1/2 hours before heading to meet Bundesbank chief Jens
Geithner has advocated leveraging European bailout
funds through the ECB to boost its capacity. Weidmann has led
opposition at the ECB to it taking a broader role.
With two new Prime Ministers in Italy and Spain pushing on
with reform, analysts wonder if the closer fiscal integration
being discussed by Sarkozy and Merkel will provide cover for the
ECB to step up buying of euro zone government bonds.
"I think Geithner can provide further political weight to a
more aggressive stance by the ECB," Lombardi said.
The U.S. would also need to give its approval to any
solution that involved the International Monetary Fund.
Many European officials see bilateral loans to the IMF from
wealthier euro zone states and key emerging markets like Brazil
or China as a way to boost the Fund's capacity to bail out a
larger economy like Italy or Spain.
The Treasury maintains that the IMF's resources are
adequate, but now appears to be open to such bilateral loans,
particularly from Europe.
The Treasury official said that there did not seem to be a
case for the United States to try to augment IMF resources with
its own funds, and it still sees the IMF as a second line of
defense. But the official added that loans from European
national central banks could help satisfy demands that the
region use more of its own money to tame the crisis.
In effect, Geithner could agree not to block such an effort
to boost IMF resources if he were satisfied that European
leaders were taking strong enough action. As the largest
contributor to the Fund, Washington has effective veto power
over major changes to the way it operates.
Geithner on Tuesday afternoon will meet with German Finance
Minister Wolfgang Schaeuble and the two will briefly meet with
reporters afterwards. He will meet Sarkozy and French Finance
Minister Francois Baroin in Paris on Wednesday.
(Additional reporting by Glenn Somerville; editing by Patrick
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