White House's Summers says world must spur growth

WASHINGTON Thu Jun 24, 2010 7:14pm EDT

WASHINGTON (Reuters) - World leaders need to take steps to foster a more durable recovery, White House economic adviser Lawrence Summers said on Thursday, while emphasizing that growth strategies did not simply mean deficit spending.

In an interview with Reuters Insider ahead of a weekend meeting of Group of 20 leaders, Summers said that building confidence also was "crucial."

A rift is shaping up ahead of the G20 summit in Toronto over how best to restore health to the still-fragile global economy. European policymakers are emphasizing budget austerity while U.S. officials warn that big economies must not stop stimulus spending.

In a hint of how leaders might paper over their differences, Summers said he and other officials recognized the need to pursue growth in a responsible way. He acknowledged the risk of spooking markets if budget policies are seen to lack credibility.

"Confidence is a crucial part of a strategy. That's why one has to look, not just at the steps that are being taken at an instant, but also at the steps that are being taken over time and...the expectations that are created," Summers said.

"There obviously is an importance in having a growth strategy, but I think it's too simple to think of growth strategies only as running budget deficits or printing money," he said.

Summers, director of President Barack Obama's National Economic Council, said "pursuing policies that are on a manifestly unsustainable path is not a growth strategy" but could instead be harmful.

The Obama administration worries that hitting the brakes too abruptly on economic stimulus could risk a repeat of the mistakes that prolonged the Great Depression in the 1930s.

But officials in Germany and other European countries are haunted by the threat of spreading contagion from the sovereign debt crisis in Greece and want to reassure markets of their commitment to reining in deficits.

In an opinion piece in the Wall Street Journal on Tuesday, Summers and U.S. Treasury Secretary Timothy Geithner said a premature focus on reducing deficits could push the global economy into a downturn.

"We must demonstrate a commitment to reducing long-term deficits, but not at the price of short-term growth," Geithner and Summers wrote. "Without growth now, deficits will rise further and undermine future growth."

ELECTION ISSUE

The debate over whether to focus on stimulus or tackling soaring budget deficits has also loomed as an important political issue in the United States.

With an eye toward congressional elections in November, Republicans have criticized Obama and his Democrats over the huge deficit, which hit $1.4 trillion last year and is expected to reach $1.6 trillion this year.

Republicans have attacked as fiscally reckless the $862 billion economic stimulus package that Obama pushed through Congress in the first few weeks of his administration last year.

White House officials say the package was crucial to reversing a freefall in the economy and label the deficits a legacy of the Bush administration.

But in a reflection of growing voter unease over the deficits, some moderate Democrats have grown skittish about supporting a new package of aid to states and an extension of unemployment benefits that the Obama administration says is needed to boost growth and help bring down the unemployment rate.

Obama has named a special commission that is expected to report back in December with recommendations for reducing long-term deficits.

In the interview, Summers also said there was "an awareness in Europe of the importance of growth and an awareness also of the importance of adding credibility and confidence to financial systems."

(Additional reporting by Mark Felsenthal and Emma Ashburn; Editing by Andrea Ricci)

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