Geithner: Global Reliance on U.S. Consumer Will Curb Growth
Timothy Geithner, U.S. treasury secretary, speaks during a news conference at the G20 Finance Ministers and Central Bank Governors Meeting in Busan. Photographer: Tomohiro Ohsumi/Bloomberg
Treasury Secretary Timothy Geithner told his Group of 20 counterparts that the pace of the global recovery depends on domestic demand in Japan and Europe, and countries shouldn’t rely on spending by U.S. consumers.
“The necessary shift towards higher savings in the United States needs to be complemented by stronger domestic demand growth in Japan and in the European surplus countries, and sustained growth in private demand” and end to the yuan peg in China, Geithner wrote in a letter before a two-day G-20 meeting in Busan, South Korea that ended today.
Geithner’s remarks underscore signs of differences over how quickly to rein in public spending, with the Treasury chief warning that fiscal tightening won’t “succeed unless we are able to strengthen confidence in the global recovery.” French Finance Minister Christine Lagarde said yesterday that budget consolidation is “priority No. 1” for most G-20 members.
G-20 central bankers and finance ministers agreed in a joint statement today that “within their capacity, countries will expand domestic sources of growth.” At the same time, European Central Bank President Jean-Claude Trichet told reporters that Europe’s best contribution to the global rebound is to achieve fiscal sustainability.
Geithner said at a press briefing today that “credible commitments to fiscal sustainability over the medium term” are needed to generate a durable recovery. Spain’s Finance Minister Elena Salgado said at a separate European press briefing that deficit reduction should come “no later than 2011.”
‘Undercut’ Recovery
“Concerns about growth as Europe makes needed policy adjustments threaten to undercut the momentum of the recovery,” said Geithner said in the letter. He said at today’s press briefing that domestic demand in Europe and Japan remains “relatively weak.”
Contents of Geithner’s letter were distributed by Andrew Williams, a Treasury Department spokesman.
Concerns of Greece’s sovereign-debt crisis spreading to other European nations have pushed down the value of the euro, allowing for cheaper exports from the euro zone. The currency shared by 16 European Union members yesterday touched $1.1956, its lowest level since 2006, and has depreciated 16 percent since the year began.
France Cheers
“I continue to say that I see good news from the current euro-dollar rate,” French Prime Minister Francois Fillon told reporters yesterday in Paris. President Nicolas Sarkozy “and I have been saying for years that the euro-dollar rate didn’t reflect reality and was penalizing our exports,” he said.
There’s been “a lot heat, a lot of heat,” in the G-20 talks, Shin Je-Yoon, deputy minister for international affairs at South Korea’s finance ministry, told reporters today. “Many ministers discuss the importance of the fiscal consolidation issues in European countries. And then also they emphasize some, at the same time, structural policies. So we need to get some collective actions to address all these issues.”
In the U.S., the Obama administration is aiming to double U.S. exports during the next five years. Geithner warned in his letter that other countries can’t rely on the U.S. consumer to propel the global economy.
Falling ‘Short’
“Given the broader shifts underway in the U.S. economy toward higher domestic savings, without further progress on rebalancing global demand, global growth rates will fall short of potential,” Geithner said.
U.S. government figures yesterday showed that employment growth was less than economists had forecast in May, while the jobless rate was 9.7 percent.
Bill Gross, co-chief investment officer and manager of the world’s biggest bond fund at Pacific Investment Management Co. said yesterday the unemployment rate may rise to 10 percent within the next several months with job growth “anemic.”
“The market was assuming that the private sector was coming back, but obviously we’ve seen none of that,” Gross said in a radio interview on Bloomberg Surveillance with Tom Keene.
Geithner also singled out Europe as a region needing to push forward with financial regulation reform. “Further progress on financial repair is critical to global economic recovery,” he wrote. “This requires, particularly in parts of Europe, further efforts to restructure and recapitalize the banking system.”
Capital Rules
The G-20 countries, which collectively account for about 85 percent of global gross domestic product, have set themselves a December deadline to agree on new rules on capital and liquidity following the worst financial crisis since the Great Depression.
The International Monetary Fund in April predicted the U.S. and Canadian expansions would lead all Group of Seven industrial nations this year, with each projected to grow 3.1 percent. That’s more than the IMF’s outlook for 1 percent growth in the euro area, a 1.3 percent increase in the U.K. and a 1.9 percent gain in Japan.
In the U.S., where personal savings is increasing and Congress is close to passing legislation overhauling financial rules, “we are meeting our responsibility,” Geithner told reporters in Washington June 2.
The savings rate in the U.S. climbed to 3.6 percent in April, the highest level since January, from 3.1 percent in March as incomes increased and purchases cooled, according to Commerce Department figures released May 29.
Geithner said that Europe’s policy makers also need to proceed with implementing their rescue plan for the region’s most indebted members. The EU unveiled an unprecedented loan package last month worth almost $1 trillion to stop a sovereign- debt crisis that threatened to shatter confidence in the euro.
“Full implementation of those commitments will help limit the risks to global recovery,” the Treasury chief said.
To contact the reporter on this story: Timothy R. Homan in Busan, South Korea, at thoman1@bloomberg.net
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