BERLIN — Treasury Secretary Jack Lew and German Finance Minister Wolfgang Schaeuble on Tuesday played down differences in their views on whether to focus more on growth or austerity in lifting Europe’s economy, but deep divides between the two remained.
On the second day of his trip to Europe, Lew met with Schaeuble, the architect of Germany’s response to the financial crisis buffeting the continent, and argued that more must be done to encourage economic growth. Germany has acknowledged the need to do more to boost the European economy but has resisted taking the sort of swift and flexible action that Americans favor.
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“Global demand needs to grow, and policies within a country to grow demand are good domestically and good for the world economy,” Lew said in an appearance with Schaeuble at the German Finance Ministry. “The driver for economic growth is consumer demand, and policies that would help to encourage consumer demand in countries that would have the capacity would be helpful.”
Lew suggested that measures taken by the United States during its recession were instructive, as policymakers have sought to keep the economy growing in the short term while working to rein in government deficits in the medium term.
“We, in the context of the U.S. economy, have seen the need to balance growth and fiscal discipline in a way that keeps our economy strong,” he said. “That’s meant some midcourse correction.”
Schaeuble said that there has been a “misconception” about German policy and that it is important to maintain a disciplined plan to constrain budget deficits even while taking new steps to generate economic activity.
“Nobody in Europe sees this contradiction between fiscal policy consolidation and growth,” Schaeuble said. “We have a growth-friendly process of consolidation, and we have sustainable growth, however you want to word it.”
Lew was in Germany on his first official trip to Europe since becoming Treasury secretary, meeting with eight senior economic leaders. He spent Monday in Brussels and Frankfurt meeting with top officials, including European Central Bank President Mario Draghi.
European leaders have been struggling to arrest the financial crisis that has pushed numerous euro-zone economies into recession and most recently fueled the near-collapse of Cyprus’s banking system.
Italy, Spain and other countries in southern Europe are in recession and straining to find ways to grow their economies. Northern European countries, namely Germany, have considerable room to boost prosperity through more flexible budget targets, government-financed stimulus and efforts to lift wages, analysts say.
“The approach that the Europeans have developed to tackle the crisis is essentially one that skews all the possible burden to the country under stress,” Domenico Lombardi, a senior fellow at the Brookings Institution, said in an e-mail. That policy can push the country into deeper financial trouble and act to spread the crisis to other vulnerable nations and beyond Europe, he said. “And this is what the [United States] is most afraid of.”
Although Schaeuble was restrained in his comments with Lew by his side, the finance minister has been defending austerity measures.
“I don’t think that any austerity programs, whether in Greece, in Portugal or in Germany, are the reason for the problems we have,” he said Monday, as reported by Bloomberg News. “We have to keep going forward on this path.”
A senior U.S. Treasury official said that Lew made clear in a private meeting with Schaeuble that it is important to spur growth, referring to the economic measure taken by the United States. But Lew did not issue specific prescriptions for the German economy, the official said, and spoke only broadly of the need to balance steps to curb deficits with the need to drive consumer demand and lower unemployment.
Jacob Kirkegaard, senior fellow at the Peterson Institute for International Economics, said Europeans are likely to see Lew as a persuasive counterpart to Germany, given his role in successful budget pacts in the United States. But Kirkegaard cautioned that expectations should not be too high.
No “Treasury secretary however articulate and well known would be able to get the Europeans — Germans — to change their . . . response policies much,” he said in an e-mail. “It is simply regarded as domestic politics in Europe, which the U.S. should not bilaterally interfere in.”
Lew also met Tuesday with French Finance Minister Pierre Moscovici in Paris. The meeting had been canceled earlier because of an unfolding scandal in France related to a former budget official who had lied about secret accounts.
Global finance ministers will gather in Washington on April 19 for meetings hosted by the International Monetary Fund and World Bank.
On his return to Washington this week, Lew is set to testify in Congress on President Obama’s budget, due to be released Wednesday.
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