The intensification of Europe's debt crisis poses a renewed threat to the US economic recovery, a senior official from the Federal Reserve has warned.
The turmoil in financial markets leading up to Greece's bail-out last May is considered to have contributed to a sharp slowing in US growth Photo: AP
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Greece, which proved the trigger point for the beginning of Europe's debt turmoil a year ago, is again at the centre of divisions on the continent over how to cut the country's debt burden.
With the ratio of Greece's debt to gross domestic product still rising, and the government struggling to deliver on reforms, some European finance ministers have signalled that the economy's debt may need restructuring. The European Central Bank, however, has warned that such a move - which could involve the maturity of some Greek debt being extended - would stop it accepting the bonds as collateral for loans to Greek's banks. Christian Noyer, a top official at the ECB, said on Tuesday that "a restruturing is a horror scenario".
For policy makers on this side of the Atlantic, renewed evidence of stress in Europe will conjure up memories of 12 months ago. The turmoil in financial markets leading up to Greece's bail-out from the European Union and the International Monetary Fund last May is considered by some to have contributed to a sharp slowing in US growth in the second quarter of 2010.
"I am concerned about the situation in Europe," James Bullard, the president of the regional branch of the Fed in St Louis, said after a speech in Missouri on Monday night. "Prolonged financial market turmoil could be a negative for the US."
The strains within Europe come at a delicate moment for the US, where most economists still expect a gradual recovery in the jobs market to help offset the financial squeeze many Americans face from higher food and petrol prices.
Mr Bullard, who is not voting on the Fed's interest rate setting committee this year, said that the Fed should abandon a policy of looking at inflation that excludes food and energy prices. "Headline inflation is the ultimate objective of monetary policy with respect to prices," Mr Bullard said.
He added that he expects US growth to pick up from the first quarter, when it slowed to an annual pace of just 1.8pc.
He added that he expects US growth to pick up from the first quarter, when it slowed to an annual pace of just 1.8pc.
