Washington: The US is planning to push Europe towards new and more aggressive efforts to boost demand and economic growth given a renewed risk of deflation in the Eurozone, a senior Treasury official has said.
The US hopes over the next two months to craft a commitment from that grouping to boost investment and infrastructure spending and take other steps to prop up aggregate demand in the short term. The G20 includes the world’s biggest industrial economies and major developing nations, and since the financial crisis has become a central forum for discussing economic policies.
Europe will be a focus at the talks, with Germany singled out for its large current account surplus as a nation that could help its neighbours by spending and importing more, an argument Washington has pressed before. “Boosting domestic demand is key and efforts to do so should be supported by decisive actions across a full range of economic policies, fiscal, structural and monetary,” said the official, who called the still anaemic inflation rate in the euro zone currency union “dangerously low”. The very long recovery from the Great Recession has failed to gain solid and durable momentum.”
The session among finance ministers and central bankers next week will lay the groundwork for a G20 leaders summit scheduled for November in Brisbane. Australia, the current chair of the global body, hopes the summit will produce an accord on efforts to boost world economic growth and tie up loose ends on financial industry reform measures developed in response to the 2007-09 economic crisis.
The group allowed top economic powers to coordinate their response to the crisis but in recent years it has been less effective as a forum for joint action. The Treasury official indicated that agreement would likely be reached on a plan outlining how the largest banks could go out of business without taxpayers footing the bill.
Ensuring that the largest institutions have enough capital and other resources to cover any losses stemming from their failure is a critical step in addressing the risks posed by banks considered ‘too big to fail.’ The Treasury official, who was not authorised to speak for the record, said that agreement on that proposal is “the most critical financial sector deliverable” for the G20 summit.
