Lew’s Lack of Geithner Global Rolodex Not Biggest Hurdle

Jack Lew, President Barack Obama’s choice to head the Treasury, won’t have the global experience of Secretary Timothy F. Geithner as he grapples with issues like Europe’s debt and China’s currency rate. It probably won’t matter.

Geithner had been a Treasury undersecretary for international affairs and an International Monetary Fund official before taking office in 2009. Lew, two-time director of the Office of Management and Budget, spent 22 months exposed to foreign affairs as a deputy secretary of state.

Geithner’s expertise ensured that his foreign counterparts would consider his views. Still, he was often frustrated that the euro area didn’t move more forcefully to fight its sovereign debt crisis. Geithner’s cause was undermined by the U.S.’s trillion-dollar deficits and infighting over the budget, according to some European officials. Lew, 57, will face the same hurdle if he is confirmed by the Senate.

“There is nothing gained by having someone who has a Rolodex and knows everyone around the world,” said Jacob Funk Kirkegaard, a senior fellow at the Peterson Institute for International Economics in Washington. “As the U.S. races to another cliff, its credibility is very small,” he said, referring to the budget disputes in Washington.

Obama yesterday called Lew a “master of policy” in announcing that he will nominate his chief of staff to become the 76th U.S. Treasury secretary. Geithner will stay on through Jan. 25, according to a department official.

Challenges Abroad

Lew faces challenges abroad including the European crisis, which is now three years old and has required five bailouts. Unemployment in the euro area reached a record 11.8 percent in November and the European Central Bank last month predicted that the 17-nation economy will shrink 0.3 percent this year.

Olli Rehn, European Union economic and monetary affairs commissioner, said in a statement today that he looks forward to working as closely with Lew “as I have with Tim Geithner, who has been a key firefighter during the crisis.”

Unlike Geithner, who has known ECB President Mario Draghi for two decades and has a close rapport with foreign officials, Lew will need “an introduction to his colleagues,” said Domenico Lombardi, a senior fellow specializing in global economics at the Brookings Institution in Washington. “The largest sources of uncertainty for the U.S. are internal, and foreign leaders may want to understand that.”

Foreign governments will look closely at whether the rest of Obama’s economic team, including a new deputy Treasury secretary, have international experience, said Lombardi, a former member of the executive boards of the IMF and World Bank. At the request of White House officials, Deputy Secretary Neal Wolin is staying at the Treasury for a transition period.

‘Limited Influence’

The next Treasury secretary will have “very limited influence on what the Europeans are doing with respect to the euro-area crisis,” said Kirkegaard, who previously worked with Denmark’s Defense Ministry and the United Nations in Iraq. “It is viewed there as an overwhelmingly domestic issue that the U.S. shouldn’t get involved in.”

An example of European sensitivities came just yesterday, when Conservative lawmakers in the U.K. reacted angrily to a call by U.S. Assistant Secretary of State Philip Gordon for Britain to remain in the European Union.

“The Obama administration now thinks the U.K. should be subservient to Brussels rule in many areas, just so the U.S. has a more acceptable lobbyist at the EU court,” former Cabinet minister John Redwood wrote on his blog.

Market Pressure

The history of the euro-area crisis “has shown that policy makers respond only to market pressure,” said Nicholas Spiro, managing director of Spiro Sovereign Strategy in London. “Sentiment toward the euro zone has improved markedly over the past several months -- so much so that the U.S. fiscal cliff is now the focal point for market anxiety.” He said the region’s crisis has been “stemmed,” though isn’t resolved.

Lew also faces a challenge in China, the world’s second-biggest economy. The U.S., which replaced the European Union as China’s largest export market last year, is encouraging the Asian nation to switch to a market-oriented exchange rate and economy based on domestic consumption rather than sales overseas.

Significantly Undervalued

The Treasury Department has declined to label China a currency manipulator under U.S. law while saying in a November report that the yuan remains “significantly undervalued.”

Even with its fiscal woes, the U.S. economy is still twice as large as China’s and grew at a 3.1 percent annual rate in the third quarter.

In addition to Europe and China, Lew “is going to have to get his hands around” the coordination of global financial rules, said Clay Lowery, a vice president at Washington-based Rock Creek Global Advisors LLC and former assistant Treasury secretary for international affairs during the George W. Bush administration.

“In the last year or two we’ve seen a lot of divergence, and much of it emanates from the U.S,” Lowery said. The U.S. has approved regulations for derivatives and the so-called Volcker rule ban on proprietary trading ahead of other nations, and “it doesn’t seem well-coordinated.”

Deputy Secretary

Lew’s lack of international experience, relative to Geithner’s, isn’t a problem, Lowery said.

“He was the deputy secretary of state, which is about as international a job as you can have, and he was chief of staff, which deals with every single issue under the sun, including extremely delicate international issues,” he said. Lew’s job at State, deputy secretary for management and resources, was focused more on internal administrative issues than policy matters.

Even Geithner, with his strong international background, occasionally clashed with his counterparts abroad.

A trip to Poland in 2011 ended with European officials rebuffing Geithner’s suggestions and pointing out U.S. economic woes.

Swedish Finance Minister Anders Borg said then that “the situation would be better if the U.S. could show a sustainable way forward.” Austrian Finance Minister Maria Fekter said she thought it was “peculiar that the Americans, although they themselves have significantly worse fundamental data than the euro area, explain to us what we should do.”

(Updates with Rehn’s comment in the seventh paragraph.)
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