European countries should ease off their austerity and adopt more growth-friendly policies, U.S. Treasury Secretary Jacob Lew said Monday as he kicked off a series of meetings with the region's top leaders.
European countries should ease off their austerity and adopt more growth-friendly policies, U.S. Treasury Secretary Jacob Lew said Monday as he kicked off a series of meetings with the region’s top leaders.
America’s biggest trading partner and the world’s largest economic bloc has entered the fourth year of a debt crisis, which has plunged many of the 27 EU nations into recession. The U.S. administration hopes Europe will relent in its focus on debt reduction, which has been hurting growth through spending cuts and tax increases.
“Our economy’s strength remains sensitive to events beyond our shores and we have an immense stake in Europe’s health and stability,” Lew said in Brussels. “The Unites States has no bigger, no more important economic relationship that it does with Europe.”
Lew, who became treasury secretary in February, started his first official trip to Europe with a meeting with EU Commission President Jose Manuel Barroso. He also met the EU’s top economic and monetary official, Commissioner Olli Rehn, and EU Council President Herman Van Rompuy.
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“I was particularly interested in our European partners’ plans to strengthen sources of demand at a time of rising unemployment,” he said, speaking alongside Van Rompuy.
Van Rompuy, who chairs the meetings of the EU’s 27 heads of state and government, acknowledged “there is a vivid debate about fiscal policy and the pace of fiscal consolidation” but defended the bloc’s economic policy as a necessity.
“The European economies face a high level of debt, deep structural medium-term challenges and short-term economic headwinds that we need to confront,” he said. “There is no room for complacency.”
The bloc’s strategy of debt reduction has become increasingly controversial also within Europe, as many nations experience rising unemployment and falling economic output – which in turn increases their debt load measured relative to annual gross domestic product.
Van Rompuy hinted, however, that the EU is willing to grant its member states some more leeway. It has, for example, given some countries more time to reach their deficit targets.
Later Monday, Lew’s focus will turn to the key officials in charge of the euro currency, shared by 17 of the EU’s 27 nations. In Frankfurt, continental Europe’s biggest financial hub, he is set to meet European Central Bank President Mario Draghi.
On Tuesday, he is due to meet German Finance Minister Wolfgang Schaeuble in Berlin. Lew was also meeting with his French counterpart, Pierre Moscovici. The French finance ministry had said the meeting was canceled because of a scheduling conflict, but then said it was back on.
The two-day trip through some of Europe’s capitals was Lew’s second tour abroad after visiting China last month.
Lew said he and the EU officials also discussed the planned free trade agreement between the U.S. and the EU, saying it “reflects our strong belief that our economic relationship can be even more productive as a source of trade, jobs and growth.”
That deal would foster growth by lowering tariffs and removing other trade barriers for most industries between the two giants, that together account for more than half of the world economy. The project has strong support on both sides of the Atlantic, with President Barack Obama and German Chancellor Angela Merkel amid its prime advocates, but the negotiations are expected to be arduous and a deal won’t be reached fast.
Lew also encouraged the EU leaders to push ahead with introducing a “common supervision for Europe’s largest banks.”
The so-called banking union is one of the bloc’s major projects to overcome its debt crisis. Under that plan, the oversight of the bloc’s banks will be centralized starting next year, eventually followed by a bailout fund with the power to solve banking failures. The goal is to prevent the cost of rescuing a bank from overwhelming the finances of a single member state.
Van Rompuy voiced confidence that European officials will be able to reach an agreement on the significant outstanding details for the plan’s legal framework by this summer.
“If anything, this crisis and recent events in Cyprus, have showed the absolute need to anchor once and for all a coherent scheme that would allow resolving failing financial institutions in an effective, predictable and consistent manner across the union,” he said.
Cyprus, a tiny eastern Mediterranean island nation of about 1 million people, had to seek a 10 billion euro ($13 billion) bailout from its European partners and the International Monetary Fund last month after a banking crisis brought it to the brink of bankruptcy.
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Sarah DiLorenzo in Paris contributed to this report.