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U.S.’s Collyns Says Parts of Europe Remain ‘Particularly Weak’

Europe’s economic recovery is threatened by “sluggish” demand as well as ongoing weakness in countries like Greece, Ireland and Portugal, a U.S. Treasury aide said.

Charles Collyns, assistant secretary for international affairs, said while Europe’s economy gained strength in the second quarter, it now faces uncertainties.

“Activity may now be slowing again,” Collyns said in prepared remarks for a speech at the Bruegel Institute in Brussels today. “The European periphery, from Greece to Portugal to Ireland, remains particularly weak as extensive adjustments are still needed to overcome the financial crisis and restore conditions for growth.”

Europe and the U.S. are at odds over how soon to withdraw fiscal stimulus as the global recovery shows signs of weakening. While governments across the 16-nation euro region are cutting spending to rein in budget deficits, U.S. President Barack Obama has urged his Group of 20 counterparts to support growth, saying restoring order to public finances should come in the “medium term.”

Collyns said the U.S. and Europe need to stay focused on growth and policies that will be sustainable over time. This includes a “credible path” to lower deficits along with continued efforts to promote growth.

The European Commission this week almost doubled its forecast for euro-area growth this year to 1.7 percent, even as it predicted a more “moderate” expansion in the second half.

German Exports

Europe’s economy grew 1 percent in the second quarter, powered by a record 2.2 percent expansion in Germany. The comparable quarter-on-quarter growth rate for the U.S. in the three months through June was 0.4 percent.

Collyns called on Germany, whose export-driven economy is the region’s largest, to do more to stimulate domestic demand. “More can be done to strengthen demand trends in countries like Germany without undermining their long-term fiscal path and export competitiveness,” he said.

Other parts of the world also can contribute to a more balanced global recovery, Collyns said.

“Countries with current account surpluses need to do more to boost domestic demand, including through greater exchange- rate flexibility in some countries in Asia,” he said.

The U.S. has been urging China to allow its currency, the yuan, to appreciate against the dollar. Treasury Secretary Timothy F. Geithner is slated to appear before two congressional panels tomorrow to discuss China’s exchange-rate policy and the Treasury’s international economic policies.

‘Substantial Progress’

Collyns said the U.S. economy has made “substantial progress” over the past year. At the same time, high unemployment and housing market weakness mean it remains vulnerable, and spending from last year’s $814 billion economic stimulus legislation has peaked.

This means that the U.S. needs to continue searching for ways to bolster the recovery, the Treasury aide said. He urged other countries with budgetary headroom to take similar action to make sure the global economy keeps growing.

“In the near term, those countries that have the capacity must not rush for the exits, especially in a world in which fiscal austerity has been forced on so many and in which the momentum of the recovery of activity remains quite modest,” Collyns said.

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