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Geithner, Summers Tell G-20 Nations to Avoid Budget Cuts That Hurt Growth
President Barack Obama’s top economic advisers urged the Group of 20 nations to avoid budget cuts that would hurt economic growth and called on China to ensure “vigorous implementation” of a more flexible currency.
“We must demonstrate a commitment to reducing long-term deficits, but not at the price of short-term growth,” Treasury Secretary Timothy F. Geithner and Lawrence Summers, director of the White House’s National Economic Council, wrote in an opinion piece posted today on the Wall Street Journal’s website. “Without growth now, deficits will rise further.”
The comments underscore a split with European officials as governments from Germany to the U.K. implement budget tightening aimed at shoring up investor confidence in the aftermath of the Greek debacle. The Obama administration, seeking to double exports over five years, wants stronger growth abroad that eases the world’s reliance on the U.S. consumer.
Emerging-market economies, accounting for two-thirds of global growth, can help the recovery by allowing exchange-rate flexibility, Geithner and Summers said ahead of the G-20 summit Obama will attend June 26-27 in Toronto. They reiterated the U.S. endorsement of China’s June 19 decision to end a fixed peg of 6.83 yuan per dollar that was adopted in 2008 to shield Chinese exporters from the global crisis.
“We welcome China’s recent decision to do so and look forward to its vigorous implementation,” Geithner and Summers said.
Obama, Merkel
Obama said in a June 16 letter to his counterparts that they must avoid the “mistakes of the past” when economic support was withdrawn prematurely. By contrast, German Chancellor Angela Merkel has said “there is no alternative” to cutting deficits.
Geithner and Summers also praised the European Union’s decision to publish stress tests on the region’s banks next month. The U.S. Treasury chief earlier this month called for “further efforts to restructure and recapitalize the banking system” in parts of Europe.
The opinion piece also urged G-20 members to stabilize their debt levels, enact new rules for financial regulation, and reduce their reliance on fossil fuels to ensure global growth.
“To maintain the momentum of the U.S. recovery, we need strong, balanced and sustainable global growth,” Geithner and Summers said.
Countries must adopt “credible plans” to stabilize their debt-to-gross-domestic-product levels, they said.
The G-20 accounts for about 85 percent of global gross domestic product. Its members are Argentina, Australia, Brazil, Canada, China, France, Germany, India, Indonesia, Italy, Japan, South Korea, Mexico, Russia, Saudi Arabia, South Africa, Turkey, the U.S., the U.K. and the European Union.
Members need to reach agreement on reducing leverage and raising capital requirements, while improving the quantity and quality of capital, Geithner and Summers wrote. Such measures “must be phased in over time so as not to interfere with the flow of credit,” they said.
To contact the reporters on this story: Vivien Lou Chen in San Francisco at vchen1@bloomberg.net; Chris Anstey in Tokyo at canstey@bloomberg.net
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