WASHINGTON (Reuters) - The United States bears “substantial” blame for the woes besetting the world economy but it will take a global effort to ease those strains, U.S. Treasury Secretary Timothy Geithner said on Wednesday.
Speaking to the Economic Club of Washington, Geithner said it was essential to find a better-balanced model for world growth that relies less on U.S. consumers as economies bid to climb out of the steepest downturn in decades.
“We must set ourselves on a path so that one country, or group of countries, does not consume in excess while another set of countries produces in excess,” he said.
Geithner’s remarks are part of a concerted campaign by the Obama administration to push developing countries to stimulate domestic demand and cut reliance on exports for growth.
U.S. President Barack Obama stressed the same theme at a meeting of the Group of 20 rich and emerging economies in London this month.
Geithner will repeat the message on Friday when he hosts a meeting of G20 officials after a regular gathering of finance ministers and central bankers from the Group of Seven major industrial powers.
Geithner stressed that the United States is prepared to incur budget deficits now to spur economic activity but said it would get spending under control once the crisis ends.
“That is very important to do, because the American people and investors (around the world) need to understand that we will have the will and the commitment as a country to go back to ... living within our means,” Geithner said.
“To get to that point we have to get a recovery in place.”
The International Monetary Fund, which with the World Bank holds semiannual meetings in Washington this weekend, said on Wednesday the global economy was likely to shrink 1.3 percent this year in its deepest swoon since the end of World War Two.
Geithner said that even when signs of stabilization appear, it was vital governments keep supporting their economies so a recovery can gain traction. The United States has been in the forefront in advocating fiscal stimulus, while some European countries say tougher financial regulation was more important.
Germany on Tuesday said it had no need for a third economic stimulus package, despite a deepening recession.
G7 sources in Europe said European finance ministers will point to tentative signs of economic stabilization at this weekend’s meetings, even if none expects a real recovery before next year.
In his remarks, Geithner cautioned that the current global downturn is far more severe than a typical recession:
“It is an abrupt correction of financial excesses that has overwhelmed economies’ and markets’ self-correcting mechanisms, and so can only be ended by extraordinary policy responses.
“We bear a substantial share of the responsibility for what has happened,” he added.
The IMF, however, implied in a report on Tuesday that Europe lags in dealing with the crucial issue of cleaning up banks’ balance sheets. It said the United States was about half-way through the process while Europe was far behind.
Political leaders at the London G20 on April 2 agreed to bolster the IMF’s resources and to boost trade financing by a total of $1.1 trillion. They also agreed to try to tighten restrictions on tax-dodging.
Finance ministers from the G7 — the United States, Britain, Canada, France, Germany, Italy and Japan — will try to put more flesh on the bones of these proposals on Friday and set out their conclusions in a communique in late afternoon.
The G20 meeting to follow will be relatively brief but acknowledges the role that countries like China, India, Brazil, Russia and South Korea can play in becoming stronger consumers and in financing the IMF and other global institutions.
Geithner pointed out that U.S. recovery depends on reversing a decline in its exports. “We need the world to provide growing markets for our goods and services,” he said.
In response to a question on whether China was manipulating its currency for unfair trade advantage, Geithner said he would go no farther than to repeat the conclusion of a Treasury report last week that once again gave Beijing a pass.
“China is playing a very important stabilizing role in the global economy today,” he said, adding Beijing was committed to a “path of further evolution in their exchange rate regime, which is so important to China and to the rest of the world.”
Editing by James Dalgleish