Treasury Secretary Jack Lew is urging economic officials in Europe to keep their foot on the gas amid concern that one of the United States’ major trading partners remains in an economic stall.
As a U.S. recovery takes hold, agencies such as the Federal Reserve have begun scaling back programs launched to fight the 2009 economic crisis.
During a two-day trip, Lew will caution leaders in Paris, Berlin and Lisbon against complacency in their own battle to repair the economy.
With Europe in a malaise of slow growth and record high unemployment rates, the region remains an “acute concern” for the United States, a senior Treasury official said.
A downward spiral of steadily lower wages and prices in Europe could still weigh on the world’s recovery, and the official said Lew will press European officials to use more aggressive fiscal and monetary policies in response.
The European Central Bank has put several new programs in place to keep the currency union from breaking apart. But it has not sanctioned the sort of widespread and regular asset purchases that the Fed and other central banks have used.
Some analysts think that may be necessary for Europe to boost growth.
There is a “desire to see more demand” in Europe, so that households, businesses and governments purchase and invest more, said the official, who briefed reporters ahead of Lew’s trip on the condition of anonymity. That should come from countries that can best afford it “but also from monetary authorities.”
Lew’s message will be particularly pointed in Germany,which has been under pressure inside Europe and internationally to use its strong public finances and well-performing economy to better prop up the rest of Europe.
Germany has been key to keeping the euro intact, using its borrowing power to help fund bailout programs in Greece, Ireland, Portugal and Cyprus.
But it also has maintained large trade and investment surpluses and a high domestic savings rate. The United States and even other European nations have argued that the country should find ways to spend and import more, to help rekindle growth elsewhere in Europe.
Despite Germany’s economic success in recent years, for example, wage growth has been modest — slightly faster than the rest of the euro area, but not by much. The country is discussing whether to put a national minimum wage in place for the first time, which would give some Germans more spending power, and also might bring labor costs there more in line with the rest of the euro area.
Among the more painful changes needed in the euro region is for countries that have higher labor costs to bring them down to those found in nations such as Germany — a process that has contributed to high unemployment rates and falling wages in Spain, but that could be eased if German wages were to rise.
Some top German economists have opposed the minimum wage for that reason, arguing that it would be illogical to try to address the euro’s problems by making Germany less efficient.
But pressure has been mounting for change of some sort. The Treasury Department sharply criticized Germany’s persistent trade and other surpluses in a recent report, and a European Commission study concluded that Germany’s surplus could make it harder for other countries in the currency union to recover.
“The weak growth of domestic demand in Germany . . . has impeded stronger, more balanced adjustment in the euro area and global growth more broadly,” said the Treasury official who briefed reporters.