While hailing recent progress in Europe’s financial mess, Federal Reserve Board chairman Ben Bernanke warned that the “situation remains difficult,” and the Fed will be prepared if U.S. markets need stabilization due to any contagion.

“The recent reduction in financial stresses in Europe is a welcome development for the United States, given the important trade and financial linkages connecting our economies,” Bernanke told a House committee Wednesday, according to prepared text of his remarks released by the Fed.

With the recent easing of financial stress in Europe, financial market tone improved globally. “Although progress has been made, more needs to be done,” Bernanke testified. “Full resolution of the crisis will require a further strengthening of the European banking system; a significant expansion of financial backstops, or 'firewalls,’ to guard against contagion in sovereign debt markets; and, critically, continued efforts to increase economic growth and competitiveness and to reduce external imbalances in the troubled countries.”

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