President Barack Obama for the second time this week criticizedthe response of European governments to the continent's debtcrisis, saying the turmoil continues to be a drag on the U.S.economy.

“Some of the challenges that we've had over the last severalmonths actually have to do with the fact that, in Europe, wehaven't seen them deal with their banking system and theirfinancial system as effectively as they needed to,” Obama saidyesterday in response to a question about U.S. economic growth at aroundtable discussion on Hispanic issues at the White House.

Obama didn't specify what steps should be taken.

Amid concern that a default by Greece could plunge the globaleconomy into a recession, the administration has stepped up publicpressure on European leaders to resolve the 18-month sovereign-debtcrisis. The issue will be at the top of the agenda when Obama joinsother leaders from the Group of 20 nations for a Nov. 3-4 summit inFrance.

Obama's remarks yesterday followed comments he made Sept. 26that Europe hadn't “fully healed from the crisis back in 2007 andnever fully dealt with all the challenges to their bankingsystem.”

“So they're going through a financial crisis that is scaring theworld,” he said at a town hall event in Mountain View, California,where he was promoting his plan to revive U.S. economic growth andhiring.

'Catastrophic Risk'
At the annual meeting ofthe International Monetary Fund and World Bank on Sept. 24 inWashington, Treasury Secretary Timothy F. Geithner warned thatfailure to combat the Greek-led turmoil could lead to “cascadingdefault, bank runs and catastrophic risk.” He urged governments towork with the European Central Bank to beef up the euro-zonebailout fund.

“It would be safe to say they've ratcheted it up,” Pierre Ellis,senior global economist at the research firm Decision Economics inNew York, said of recent comments by Obama and Geithner.

“What everybody fears is a sort of Round II of a credit crunch,”Ellis said. Europe may be “very vulnerable to problems with debtover there and that, in turn, causing problems for our banks. And,of course, the White House is certainly not averse to findingreasons for problems in our economy.”

As investors watched for signs of progress in Europe's effortsto deal with the debt crisis, U.S. stocks halted a three-day rallyand the euro reversed an early gain versus the dollar. Treasuriestrimmed losses as the 10-year note's yield headed for its biggestincrease over four days since January 2009.

Stocks Slide
The Standard & Poor's 500Index lost 2.1 percent to 1,151.26 in New York yesterday afterclimbing 0.8 percent earlier and rallying 4.1 percent over theprevious three sessions. The euro weakened 0.3 percent to $1.3548,erasing a 0.8 percent advance. Ten-year yields rose two basispoints to 2.01 percent and have climbed 27 points in four days.

The administration has been in contact with Europeangovernments, urging officials “at the presidential level, at theministerial level” to “take forceful and direct action” to dealwith the crisis, White House press secretary Jay Carney said at abriefing yesterday after Obama spoke.

While the debt situation in Europe is “certainly a matter ofconcern,” Obama administration officials continue to believe thatgovernments there have the “financial wherewithal” to deal with thecrisis, Carney said.

European Meeting
Experts from the EuropeanCommission, the European Central Bank and the InternationalMonetary Fund are scheduled to return to Athens today as officialsrace to put in place measures to contain fallout from Greece. Theywill resume a review of whether Greece has met conditions for thenext slice of the initial, 110 billion euro ($150 billion) bailoutpackage engineered last year.

Obama is facing re-election next year and the economy will bethe top issue in the presidential contest and campaigns forCongress.

The Office of Management and Budget, in an August update ofeconomic administration forecasts, projected the U.S. economy willgrow at a sluggish 1.7 percent rate this year and the jobless ratewill average 9.1 percent. At the start of the year, the White Houseforecast a growth rate of 2.7 percent.

Growth will pick up in 2012, with the economy expanding 2.6percent on a year-over-year basis, the OMB said.

Severe Repercussions
The InternationalMonetary Fund cut its forecast for global growth and predicted“severe” repercussions if Europe fails to contain its debt crisisor U.S. policy makers deadlock over a fiscal plan.

Pressure from the U.S. has caused friction with Europe. AustrianFinance Minister Maria Fekter said earlier this month that shefound it “peculiar” to be lectured by the U.S., a country withhigher aggregate debt than the euro area.

The OMB forecasts the federal budget deficit will be $1.3trillion for the fiscal year that ends Sept. 30 — 8.8 percent ofgross domestic product — and $956 billion in fiscal 2012. Thebudget office's estimates total deficits over the next decade at$5.75 trillion from 2012-2021.

Obama's proposals for cutting the long-term U.S. debt have runinto resistance from Republicans, who control the House ofRepresentatives and oppose raising taxes to narrow the deficit.

After partisan disputes dragged out negotiations in July overraising the government's borrowing authority, Standard & Poor'slowered the U.S.'s credit rating to AA+ from AAA on Aug. 5. Moody'sInvestors Service and Fitch Ratings have affirmed their toprankings on the U.S.

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