Lew Calls on Europe to Do More to Avert ‘Lost Decade’

U.S. Treasury Secretary Jacob J. Lew called on Europe to do more to avert a lost decade of growth, saying central bank easing alone isn’t enough.

“Status quo policies in Europe have not achieved our common G-20 objective of strong, sustainable and balanced growth,” Lew said in a speech in Seattle today. “Resolute action by national authorities and other European bodies is needed to reduce the risk that the region could fall into a deeper slump. The world cannot afford a European lost decade.”

The comments suggest euro area officials will again be put on the defensive by criticism at this week’s Group of 20 nations meeting in Brisbane, Australia. Bank of England Governor Mark Carney, who attends G-20 meetings as the chairman of the Financial Stability Board, today said “a specter is now haunting Europe -- the specter of economic stagnation.”

Lew singled out Germany and the Netherlands as European countries that could use fiscal measures to boost demand. “Greater spending on investments like infrastructure would increase long-term economic potential,” he said.

The secretary said that while the world is “counting on the U.S. economy to drive the global recovery,” growth will be stronger if other countries take steps to boost domestic demand.

“The global economy cannot prosper broadly relying on the United States to be the importer of first and last resort, nor can it rely on the United States to grow fast enough to make up for weak growth in major world economies,” Lew said.

European Data

Data scheduled for release this week will show both inflation and economic growth are moribund in the euro-area economy, according to the median estimates of economists surveyed by Bloomberg News.

The surveys suggest the 18-nation economy grew 0.1 percent in the third quarter from the previous period after stagnating in the prior three months, while inflation from a year earlier was 0.4 percent in October, less than a quarter of what the European Central Bank regards as price stability.

“The ECB has taken forceful steps to support the economy through accommodative monetary policy,” Lew said. “But as recent economic performance suggests, this alone has not proven sufficient to restore healthy growth.”

The International Monetary Fund cut its outlook for global growth in 2015 last month, warning that debt accumulated following the financial crisis was still weighing down advanced economies.

Exchange Rates

Lew said today that market-determined, flexible exchange rates are “an important source of resilience in the global economy.” He added that it is “critical” for countries to live up to commitments to maintain flexible exchange rates they’ve made at meetings of the IMF, G-7 and G-20, without specifying any individual nations.

While Japan’s monetary and fiscal stimulus contributed to stronger growth in 2013, the test will be whether the so-called “third arrow” of structural reforms that have yet to be fully released are “sufficient to transform Japan’s economy, and the jury is still out,” he said.

The U.S. has outperformed other advanced economies, and Lew’s remarks come amid growing evidence that U.S. growth is helping buoy an otherwise sluggish global recovery. The U.S. economy expanded more than forecast in the third quarter, growing at a 3.5 percent annualized pace, Commerce Department figures showed Oct. 30.

“Even though we are doing much better, more remains to be done,” Lew said. “We are already reaching out to the new Congress to explore areas where we can work together.”

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