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Washington - A simmering economic row between the United States and Europe showed little sign of abating Tuesday, as Treasury Secretary Timothy Geithner insisted the economic recovery must take precedence over budget cuts.
In statement likely to be seen as a thinly-veiled attack on European policy, Geithner and White House economic advisor Lawrence Summers pressed G20 allies to take care of short-term economic growth before tackling long-standing budget shortfalls.
"We must demonstrate a commitment to reducing long-term deficits, but not at the price of short-term growth," the pair wrote in the Wall Street Journal, addressing an issue likely to be at the center of a debate when G20 leaders meet in Toronto later this week.
Facing the prospect of a double-dip recession in a mid-term election year, the White House had already urged European and other nations not curb spending, a measure seen as kicking away one of the key crutches propping up the recovery.
But that call fell largely on deaf ears earlier Tuesday, as one by one European countries reaffirmed their commitment to budget cuts.
Britain led the way, announcing the heaviest cuts in a generation, slashing billions from public spending, raising taxes and even announcing reform of funding for the Queen's household in a radical and symbolic policy swing.
German Chancellor Angela Merkel revealed she had told the US President Barack Obama that he had got it plain wrong.
"Yesterday, during a phone call with Barack Obama, I told him how important budgetary consolidation was," Merkel said.
She added she did not believe savings measures she has announced for Germany, amounting to some $98bn from next year until 2014, "would slow down the global economy."
French Finance Minister Christine Lagarde meanwhile vowed to forge ahead with spending cuts and even hinted that more may be on the way.
Earlier this month France's center-right government announced that it intended to slash public spending by $124bn in the next three years.
But Washington continues to fight hard for policies that it believes would rebalance the global economy away from an over-dependence on US consumers - whose high debt levels helped spur the recent crisis.
"We must ensure that global demand is both strong and balanced. While the US was the major source of demand for the world economic growth before the crisis, global demand must rest on many pillars going forward," Geithner and Summers wrote.
They also called on Asia, and particularly China, to pay its role in rebalancing the global economy.
"Emerging economies can help strengthen the global recovery by strengthening domestic sources of growth and by allowing more flexibility in their exchange rates," the pair said, welcoming China's decision to partially float its currency, the yuan.
But Geithner and Summers also called on China to match its promises with deeds. "We welcome China's recent decision to do so and look forward to its vigorous implementation."
US lawmakers accuse Beijing of keeping the yuan artificially low to boost Chinese exports and the comments come just days after China announced it would allow its currency to trade more freely, but indicated there would be no dramatic shifts in the yuan's value.
And with the United States facing its largest-ever environmental disaster in the form of the Gulf of Mexico oil spill, the pair also called for an gradual end to oil subsidies.
"We must address the urgent challenge of our energy needs, as the current disaster in the Gulf makes clear.
"In Pittsburgh, the G20 countries agreed to phase out inefficient fossil fuel subsidies over time.
"The US has laid out how it intends to achieve this goal, and we urge other G20 countries to demonstrate their commitment to this critical objective."
- AFP
