BBC News | Friday, 25 June 2010 | 12:36 GMT
Europe must focus on growth as well as cutting spending to reduce national deficits, US Treasury Secretary Timothy Geithner has told the BBC. Speaking in Washington ahead of G8 and G20 meetings this weekend in Canada, Mr Geithner said that world leaders must concentrate on the "paramount" challenges of growth and confidence. He added the world could not rely as much on the US as it has in the past. The European Union says securing growth "remains a priority". The Group of Eight and Group of 20 rich and developing nations are assembling on Friday for three days of talks. The leaders of the G8 countries – Canada, France, Germany, Italy, Japan, Russia, the UK and the US – are meeting in Muskoka, Ontario on Friday and Saturday to discuss help for poor countries. Later on Saturday, in Toronto, the G20 will open talks on how best to emerge from the worst financial crisis since the Great Depression, and will conclude the summit on Sunday.
Many European governments, including the UK, have implemented severe austerity measures in recent weeks in order to cut debt levels. UK Prime Minister David Cameron, who has arrived in Canada along with other leaders, said in an article for the Globe and Mail newspaper: "No-one can doubt the biggest promise we have to deliver: fixing the global economy." "I believe we must each start by setting out plans for getting our national finances under control," he added. Herman van Rompuy, the president of the European Council, said that the EU’s key words this weekend would be "growth, confidence and medium term". "The restoring of confidence in budgetary policies goes hand in hand with effective growth strategies," he said ahead of the meetings.
When asked if Europe faced the possibility of Japanese-style stagnation if it carries on with debt reduction policies, Mr Geithner said "Europe has the capacity to prevent that". But he added: "Europe can make a choice to put in place the reforms and policies that will provide the possibility of stronger growth rates in the future. This
meeting gives us the chance to sit together and look at whether we’ve got a broad strategy across the country that’s going to strengthen this recovery." "Our job is to make sure we’re all sitting there together to focus on this challenge of growth and confidence because growth and confidence are paramount." Some commentators in Europe argue that austerity measures should only be introduced once strong growth has been secured in the wake of the global downturn. This was a more widely-held position until the Greek debt crisis focused policymakers’ minds on cutting debt levels. The Greek crisis showed that governments with high levels of debt find it very difficult to borrow money from international investors, money that they need to service existing debts.
In a letter to G20 leaders last week, US President Barack Obama warned against cutting national debts too quickly, arguing it would put economic recovery at risk. We must learn from the mistakes of the past, he wrote. While he did not name any particular government, and acknowledged that government finances need to be improved, he is clearly uneasy about the timing of such austerity measures. But Mr Geithner said the US and Europe "have much more in common than we have differences". "We all agree that we have to restore responsibility to our fiscal positions. Everyone agrees that those deficits have to come down over time to a level that’s sustainable," he said. But he said that the US and Europe would take "different paths, at a different pace" in order to reach the common goal. "It’s going to require different things as we have different strengths and weaknesses," he said.
Mr Geithner said the US was not in a position to work out what were the best policies for European countries to pursue. The treasury secretary said the US had laid out "very ambitious plans as well" to cut its deficit. But he said the US was in a stronger position than many other economies to cut its debt levels. "We’re in the very good position of being able to deliver relatively strong growth rates [compared] to what we’re seeing in other major economies," he said.