* Washington says decisive action needed "now"
* Calls on Europe to rethink push toward austerity
* Says European surplus countries should boost demand
* Calls Europe's reliance on exports "unsustainable"
By Jason Lange
WASHINGTON, May 23 The United States on Thursday
called on Europe to act decisively to boost its economy and
counter the risk of a protracted stagnation that would undermine
economic growth in America.
"Decisive action is needed now to restart demand and avoid
the risk of protracted stagnation," U.S. Treasury Undersecretary
Lael Brainard told lawmakers.
Europe is locked in a grinding recession that in some
corners of the continent increasingly looks like a depression.
Unemployment in the 17 nations that use the euro hit a record
high in March at 12.2 percent. In Greece, the jobless rate has
been above 20 percent since late 2011.
The currency bloc got into trouble following the 2009 global
financial crisis as investors lost confidence in some members'
ability to repay their debts.
Brainard, one of the Obama administration's top hands on
international economics, said Europe should rethink a broad push
toward fiscal austerity and some countries should be given more
time to get their budgets in order. She said countries with more
"fiscal space" should shift toward boosting growth in their
"The focus of the policy debate in Europe must now shift
from restoring financial stability to developing a plan to boost
demand and employment," the senior Treasury official told the
Senate Foreign Relations Committee.
The United States itself has engaged in a substantial amount
of austerity since the end of the global financial crisis, which
was sparked by a burst debt bubble that was built around the
U.S. housing market.
But the Federal Reserve has managed to keep interest rates
extremely low to counter some of the fiscal drag from
Washington. That hasn't been the case in much of the euro zone,
where the European Central Bank, or ECB, has struggled to pump
credit into the region's weakest economies.
Europe's woes have been a significant drag on the U.S.
economy in recent years, and officials in Washington say a
stronger European economy is also important to U.S. foreign
policy. The United States and Western Europe have long operated
as a diplomatic bloc, and together they dominate international
economic institutions like the International Monetary Fund and
the World Bank. Washington and the European Union currently aim
to establish a free-trade agreement.
"We need Europe in many, many ways," said Robert Hormats, an
undersecretary of State who spoke before the Senate panel
Brainard said the United States welcomed European
policymakers' recent discussions on how to find ways to boost
But Washington is frustrated by the region's reticence to
discuss imbalances within the euro zone, which many economists
see as a fundamental factor behind the European crisis.
Countries such as Germany kept labor costs down to help
exporters, while nations in the periphery allowed wages to rise
too quickly in the years leading up to the crisis, leaving them
now hard-pressed to compete internationally, economists say.
Washington wants Europe to take steps to correct this
imbalance, but doing so is politically difficult in the currency
"There is little discussion of how addressing surpluses in
countries that export substantially more than they import might
help ease the sharp compression of demand now underway in the
deficit countries," Brainard said.
She said Europe's strongest exporters had a special role to
play in stimulating demand, and called on countries running
current account surpluses in excess of 6 percent of their
economic output to quicken wage growth and encourage greater
Current account balances are a broad measure of the flows of
goods, services and capital across borders.
In a nod to the international tension over currency policy,
Brainard added that Europe as a whole was depending too much on
exports as a way of supporting its economy. "That is not
sustainable," she said.