Wednesday

18th Oct 2017

US keen for Germany to lead EU out of crisis

US treasury secretary Jack Lew on Tuesday (9 April) hinted that Germany should boost its internal demand to help Europe get out of the crisis.

But German finance minister Wolfgang Schaeuble said Berlin has no need for US tutelage.

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  • Lew (r) - the US has an 'immense stake' in seeing the euro-crisis come to an end (Photo: Joerg Rueger/German ministry of finance)

"We need to balance policies of growth and fiscal consolidation. The driving force behind any recovery is consumer demand, so any policies to help encourage consumer demand in countries that have the capacity would be helpful," Lew said during a joint press conference with Schaeuble in Berlin.

Germany has a policy of keeping down wages in order to make it a more attractive location for manufacturers and exporters.

But the low pay stymies growth in German domestic consumption.

At the same time, its firm policy on avoiding inflation has kept the euro relatively strong on currency markets, hampering efforts by crisis-hit eurozone states, such as Greece or Spain, to export their way out of trouble.

For his part, Schaeuble, while welcoming the new US minister on his first visit to Berlin, said there is no need for Germany or the US to give "lessons" or "grades" to each other.

"We need to understand each other. The situation in the US is completely different than the one in Europe and I was trying to explain that," he told press.

"I tried to explain to him the complicated structures we have here in Europe. We are on the right way [out of the crisis], but we have complex decision making structures," he added.

Both officials tried to downplay their differences on how to balance austerity with growth-spurring measures.

"I would emphasise the areas where we agree - we share a commitment to growth and to fiscal discipline," Lew said.

According to one German official, the two ministers had a "getting to know each-other-kind-of meeting."

The contact noted that Lew simply set out what the US is doing to stimulate growth and asked what Germany is doing on the same front.

The source said they also discussed the Cyprus bailout, with Schaeuble "explaining more what happened, how we came to this decision rather than looking forward in terms of what comes next."

Lew also showed interest in the EU's so-called banking union - a subject he also raised at meetings in Brussels and Frankfurt, the headquarters of the European Central Bank (ECB), on Monday.

The banking union project envisages making the ECB into a single supervisor of all big eurozone banks, as well as common EU ruleson how to wind down or recapitalise failing lenders.

Germany is currently opposing any model which involves joint risk-taking - in other words, German taxpayers having to pay for failing banks in Spain or Cyprus.

During a press statement on Monday in Brussels after meeting EU council chief Herman Van Rompuy, Lew said he "appreciated the chance to hear about the scope to broaden the framework for oversight and risk sharing in line with euro-area's large and interconnected banking sector."

He also stressed that the US has an "immense stake" in Europe's economic recovery.

Later on Tuesday, Lew was set to fly to Paris to meet his French counterpart Pierre Moscovici, who rescheduled his US meeting amid an ongoing tax evasion scandal surrounding a former minister.

IMF warns Europe of falling behind US on recovery

Europe is falling behind the US in emerging from the economic crisis, with sluggish growth in Germany and recession in France worsening the outlook for eurozone periphery countries, the IMF has said.

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