Geithner Says Global Reliance on U.S. Consumer Will Curb Growth

By Timothy R. Homan

June 5 (Bloomberg) -- U.S. Treasury Secretary Timothy Geithner told his Group of 20 counterparts that the pace of the global recovery depends on domestic demand in Japan and Europe, and countries shouldn’t rely on spending by American consumers.

“The necessary shift towards higher savings in the United States needs to be complemented by stronger domestic demand growth in Japan and in the European surplus countries, and sustained growth in private demand, together with a more flexible exchange rate policy, in China,” Geithner wrote in a letter before a G-20 meeting of central bankers and finance ministers in the South Korean city of Busan that ends today.

Geithner’s remarks underscore signs of differences among the G-20 over how quickly to rein in public spending, with the Treasury chief warning that fiscal tightening won’t “succeed unless we are able to strengthen confidence in the global recovery.” French Finance Minister Christine Lagarde said budget consolidation is “priority No. 1” for most G-20 members.

“Concerns about growth as Europe makes needed policy adjustments threaten to undercut the momentum of the recovery,” said Geithner. He also said that “we need to put in place credible commitments to restore fiscal sustainability over the medium term.”

Contents of Geithner’s letter, dated June 3, were first reported by the Wall Street Journal and verified by Andrew Williams, a Treasury Department spokesman.

Germany’s Cuts

Germany, Europe’s biggest economy, plans to start its exit from economic stimulus next year after conducting an “expansive” policy in 2010, a German government official told reporters yesterday on condition of anonymity.

Concerns of Greece’s sovereign-debt crisis spreading to other European nations have pushed down the value of the euro, allowing for cheaper exports from the euro zone. The currency shared by 16 European Union members yesterday touched $1.1956, its lowest level since 2006, and has depreciated 16 percent since the year began.

“I continue to say that I see good news from the current euro-dollar rate,” French Prime Minister Francois Fillon told reporters yesterday in Paris. President Nicolas Sarkozy “and I have been saying for years that the euro-dollar rate didn’t reflect reality and was penalizing our exports,” he said.

Export Goal

In the U.S., the Obama administration is aiming to double U.S. exports during the next five years. Geithner warned in his letter that other countries can’t rely on the U.S. consumer to propel the global economy.

“Given the broader shifts underway in the U.S. economy toward higher domestic savings, without further progress on rebalancing global demand, global growth rates will fall short of potential,” Geithner said.

Geithner also singled out Europe as a region needing to push forward with financial regulation reform. “Further progress on financial repair is critical to global economic recovery,” he wrote. “This requires, particularly in parts of Europe, further efforts to restructure and recapitalize the banking system.”

The G-20 countries, which collectively account for about 85 percent of global gross domestic product, have set themselves a December deadline to agree on new rules on capital and liquidity following the worst financial crisis since the Great Depression.

Growth Differences

The International Monetary Fund in April predicted the U.S. and Canadian expansions would lead all Group of Seven industrial nations this year, with each projected to grow 3.1 percent. That’s more than the IMF’s outlook for 1 percent growth in the euro area, a 1.3 percent increase in the U.K. and a 1.9 percent gain in Japan.

In the U.S., where personal savings is increasing, job growth has resumed and Congress is close to passing legislation overhauling financial rules, “we are meeting our responsibility,” Geithner told reporters in Washington June 2.

The savings rate in the U.S. climbed to 3.6 percent in April, the highest level since January, from 3.1 percent in March as incomes increased and purchases cooled, according to Commerce Department figures released May 29.

Geithner said that Europe’s policy makers also need to proceed with implementing their rescue plan for the region’s most indebted members. The EU unveiled an unprecedented loan package last month worth almost $1 trillion to stop a sovereign- debt crisis that threatened to shatter confidence in the euro.

“Full implementation of those commitments will help limit the risks to global recovery,” the Treasury chief said.