Wednesday

20th Jun 2018

US to chide Germany on eurozone growth at G7 meeting

US treasury secretary Jack Lew will repeat calls for Germany to stimulate demand in order to drag the eurozone out of recession, according to US government sources.

Speaking with reporters in Washington on Wednesday (8 May) ahead of the meeting of G7 finance ministers in the UK on Friday (10 May), a senior US Treasury official commented that Lew's main message would be to urge the eurozone to "reinvigorate growth and domestic demand."

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  • Wolfgang Shaeuble (l) has in the past said that Germany does not want to be 'graded' by the US (Photo: Joerg Rueger/German ministry of finance)

The official added that "Europe's surplus countries hold the key" to kickstarting the eurozone economy and increasing employment, highlighting the reduction of Germany's 7 percent export surplus.

Meanwhile, the eurozone should "recalibrate fiscal consolidation programmes" and avoid "excessively sharp consolidation."

European leaders in the G7 are keen to focus the informal discussions on automatic exchange of information on foreign-held bank accounts as part of wider talks on combating tax evasion and avoidance.

The US, meanwhile, has made it clear that its priority is bolstering Europe's fragile economy.

The US stance is likely to meet resistance from the German government, which is reluctant to increase wages and stimulate domestic spending, preferring instead to keep wages low to encourage manufacturing and exports.

But Berlin is under pressure to reduce its 7 percent export surplus. In April, Lew used his first trip to Berlin as Treasury Secretary to urge counterpart Wolfgang Schaueble to put in place measures to stimulate consumer spending.

For his part, Schaueble commented that neither the US or Germany should try to give "lessons" or "grades" to each other.

Last week the EU's Economic Affairs Commissioner Olli Rehn, regarded as one of the bloc's leading hawks on deficit cutting, indicated that France and Spain would be given an additional two years to reduce their deficits to the 3 percent threshold laid out in the EU's budget rules.

Rehn has also in recent weeks sought to underline that the pace of deficit reduction will slow in 2013 to an average of 0.75 percent of GDP, down from 1.75 percent in 2012.

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At a meeting next week, eurozone finance ministers and the IMF are expected to agree on new cash, debt relief measures, and a monitoring mechanism to ensure that Greece can live without international aid for the first time since 2010.

Opinion

Eurozone needs institutional reform

Both the examples of Greece and Italy test the limits of a system with inherent weaknesses that feeds internal gaps, strengthens deficits and debts in the European South, and surpluses in the European North respectively.

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Europe could lose out in North Korean bonanza

South Korean businesses including Hyundai and Samsung are already scoping investment opportunities. Will North Korea become a 'new Vietnam' opportunity - or more like Myanmar, where slow Brussels policy-making meant EU exporters lost out.

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