European economy has momentum to follow U.S. decline

U.S. Treasury Secretary Henry Paulson said on Wednesday that there were signs that the European economy was following the U.S. downturn and that European financial institutions had not raised enough capital to cover losses. Speaking to research house ChathamHouse in London, Paulson reiterated his call for banks to continue to build capital and secure credit availability. In his speech, Paulson said he hoped financial institutions would play an important role in supporting economic growth by unwinding their leveraged positions, disclosing losses and raising more capital. He said many companies had already taken action, raising a total of $338 billion globally since the U.S. subprime mortgage crisis triggered a widespread credit crunch in August. But while U.S. financial institutions have raised enough capital to cover 95% of losses, European companies are currently only raising enough capital to cover 56% of losses. Paulson said it will take more time to resolve financial market issues, and certain asset classes and industries may still face revaluation risks. Paulson said that the U.S. economy is going through a difficult period, and rising oil prices are likely to prolong the slowdown, while the decline in real estate prices puts the economy at serious downside risks. He noted that both the UK and European economies are showing signs of slowing, but continued economic growth in emerging market economies should provide a boost to the global economy. Paulson said he was concerned about the idea that some financial institutions would not have problems because they were so large.