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Friday, July 15, 2011

Eurozone crisis poses threat to US, warns Fed chairman Ben Bernanke

The news came as Portugal said it will see its economy shrink 2.3pc this year and 1.7pc in 2012, with a recovery only coming in 2013.

"The economic recovery will only occur in 2013," Finance Minister Vitor Gaspar said.

Speaking to senators on Capitol Hill, Mr Bernanke played down the immediate impact on the US of festering problems in Greece, Ireland and Portugal, "because the three countries... are really a very small part of the European continent and the European economy. .

But he acknowledged that, the US's own issues aside, eurozone problems have been causing "a good bit of anxiety in markets."

"That's been affecting our economy, both last summer and now recently as well."

Mr Bernanke said that the exposure of US financial institutions, mutual funds and money market funds to the three countries "are quite small and manageable".

But "were there to be a significant deterioration in conditions in Europe, we would see a general increase in risk aversion, declining asset prices, a lot of volatility in markets", he told senators.

"And we would suffer from that more general financial situation than we would from the direct exposures to those sovereign countries," Mr Bernanke said.

Meanwhile, the International Monetary Fund has blamed policymaking delays and infighting in the European Union - particularly over whether to make private bondholders share in losses - for needlessly worsening the eurozone debt crisis.

The Telegraph

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