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Treasury’s Brainard Says Expanding Europe Demand Is Top Priority

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May 16 (Bloomberg) -- The U.S. Treasury’s top international official said that strengthening European demand is “the most important immediate imperative” for reviving global growth.

Lael Brainard, the Treasury’s undersecretary for international affairs, also said in the text of a speech today in New York that China needs to increase the flexibility of its exchange rate system.

The euro-area economy shrank more than economists forecast in the three months through March, a report said yesterday, extending its recession to a record sixth quarter and increasing pressure on the currency bloc’s leaders to spur growth. Gross domestic product in the 17-nation euro zone fell 0.2 percent after a 0.6 percent decline in the previous quarter, the European Union’s statistics office in Luxembourg said.

“Domestic demand in the euro area is now lower than at the low point of the global crisis in 2009 in real terms,” Brainard told the Council on Foreign Relations. “All of the recovery in European output since that time has come from net exports.  That is not sustainable for a region that accounts for almost 20 percent of the world economy.”

Tightly controlled exchange rate regimes “put an undue burden of adjustment on those emerging economies with market exchange rates,” Brainard said. Such tightly controlled systems also “contribute to the weakness of demand in the advanced economies,” she said.

Brainard said it is “imperative that China take additional measures to increase the flexibility of its exchange rate regime,” while it is “critical” for Japan to expand domestic demand.

To contact the reporter on this story: Kevin Costelloe in Washington at kcostelloe@bloomberg.net

To contact the editor responsible for this story: Chris Wellisz at cwellisz@bloomberg.net

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