U.S. Treasury Secretary Jacob J. Lew urged European leaders to move toward a full banking union and said some countries including China still need to adopt market-determined exchange rates.
Europe’s economic recovery “remains weak, unemployment is high and fiscal contraction along with deleveraging in the banking and business sectors will continue to act as headwinds to growth,” Lew said in a statement to the International Monetary and Financial Committee in Washington today.
The IMF this week raised its forecast for the 17-country euro area to a contraction of 0.4 percent this year compared with a July outlook for a 0.6 percent decline. It now expects an expansion of 1 percent next year instead of 0.9 percent forecast three months ago. Growth worldwide will be 2.9 percent this year and 3.6 percent next year, the Washington-based IMF said.
The global economy faces “headwinds from fiscal drag, private sector deleveraging, and inadequate global rebalancing,” Lew said. For the U.S., “our work begins at home.” He reiterated the Obama administration’s position that the government shutdown must end and Congress must raise the federal debt limit.
If Congress “acts quickly” to resolve the shutdown and debt ceiling, the U.S. economy will continue to strengthen, he said.
The Group of 20 central bankers and finance ministers meeting in Washington singled out the U.S. for criticism and demanded that it take “urgent action” to resolve the political logjam threatening to trigger a default of the world’s benchmark debt.
Lew said Europe needs further progress “in moving toward a full banking union, which includes not only a single supervisory mechanism but also resolution authority, recapitalization capacity, credible deposit insurance, and some degree of risk-sharing among members.”
He urged countries to abide by the G-20’s agreements on currencies, including moving “more rapidly toward market-determined exchange-rate systems” and to not “target” exchange rates.
Japan needs to take “fundamental steps to increase domestic demand,” Lew said. “Structural reform is needed to improve economic potential.”
Lew reiterated the U.S. position that China needs to strive for a “durable shift from export- and investment-led growth to sustainable consumption-led growth, including more decisive actions on structural reform and moving more quickly toward a market-determined exchange rate.”