Geithner: Europe threatens U.S. economy

Treasury Secretary Tim Geithner warns that the European debt crisis threatens the U.S. economy.

WASHINGTON (CNNMoney) -- The biggest threat to the U.S. economy is Europe, Treasury Secretary Tim Geithner said Wednesday.

"The economic recession in Europe is hurting economic growth around the world, and the ongoing financial stress is causing a general tightening of financial conditions, exacerbating the global slowdown," Geithner said in testimony before the House Financial Services Committee.

Geithner's testimony comes as part of his role as chief of a regulatory group called the Financial Stability Oversight Council.

Geithner touted that four years after the financial crisis the system is "stronger and more resilient." He said that banks now hold far more capital in reserves than they used to.

And the size of the "shadow banking system," or financial contracts called derivatives, that remains unregulated has shrunk since the crisis, Geithner said.

But the European debt crisis remains a substantial threat to U.S. and worldwide growth, according to the Treasury chief.

"A severe crisis in Europe would necessarily have very substantial, adverse effects on the United States," Geithner said.

Geithner said that the U.S. economy has also been hurt by the rise in oil prices earlier this year, cuts to government spending and slow rates of income growth. He warned that economic growth could be curtailed more by approaching tax increases and spending cuts, and uncertainty about what Congress will do as the so-called fiscal cliff approaches.

"These potential threats underscore the need for continued progress in repairing the remaining damage from the financial crisis and enacting reforms to make the system stronger for the long run," Geithner said.

During the hearing, Geithner is expected to be asked about his role running the New York Federal Reserve, which is embroiled in the scandal over rigging of a key financial benchmark that impacts interest rates for mortgages, loans and derivative contracts worldwide.

While Geithner was in charge of the New York Fed, the agency got early warning signals that the British bank Barclays was fixing the Libor rate.

Geithner didn't mention the Libor scandal in his opening statement.