Treasury head visiting Europe, to stress growth

Eurozone officials concerned about wilting economy

Secretary Jacob Lew
Getty Images/File
Secretary Jacob Lew will travel to Europe with a familiar message from Washington.

WASHINGTON — Jacob J. Lew began his first trip to Europe as Treasury secretary Sunday, a four-city tour in which he is expected to try to persuade finance ministers to pursue a little more growth and a little less austerity to improve the economic fortunes there and elsewhere.

Growth is again at the top of the Obama administration’s agenda as Lew meets over a 48-hour period with high-ranking leaders representing the European Union, Germany, and France. Europe’s sovereign debt crisis continues to simmer for its fourth year, most recently in Portugal over the weekend, and European unemployment rates are still rising. The eurozone economy shrank in the fourth quarter of 2012, with the large economies of Germany, France, Spain, and Italy all contracting.

“Our European partners need to safeguard the stability they have achieved so far,’’ a senior Treasury official said, noting that the problems in the eurozone reduced global growth by three-tenths of a percentage point last year.


“In light of the reality that countries representing one-third of euro area GDP are shrinking their budgets and restructuring their economies, it is vital to see rebalancing within the euro area with surplus economies contributing more to demand,’’ said the official, who insisted on anonymity in discussing the Treasury secretary’s plans.

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Some European officials have also said they are concerned about a potential cycle of austerity and recession, with budget cuts leading to shrinking economies, making it harder and harder to meet budget goals.

The ‘‘economic outlook for the euro area remains subject to downside risks,’’ said Mario Draghi, the president of the European Central Bank, at a news conference last week. Lew is scheduled to meet with Draghi on Monday.

‘‘The risks include the possibility of even weaker than expected domestic demand and slow or insufficient implementation of structural reforms in the euro area,’’ Draghi said. ‘‘These factors have the potential to dampen the improvement in confidence and thereby delay the recovery.’’

But countries like Germany have shown little willingness to ease the constraints of austerity for peripheral European countries, or to engage in stimulus spending themselves.


And for years, European officials have bridled at being lectured by officials from Washington, particularly because many feel that their financial crisis was largely caused by American financial products exported around the world by American banks.

Though Lew will travel to Europe with a familiar message from Washington, it may not be delivered as urgently as in the past. The European crisis continues to weigh on American growth, cutting into exports, but many economists believe that the United States has entered a cycle of self-sustaining economic growth driven by a turnaround in housing and improving household budgets.

Moreover, American companies have over the last few years steeled themselves against Europe’s financial woes, and the risk of contagion is perceived to be relatively low.

Europe was the primary international concern for Timothy F. Geithner, Lew’s predecessor as Treasury secretary. But perhaps as a sign of Europe’s diminishing threat to US economic stability, Lew’s first overseas trip as Treasury secretary, last month, was not to Paris or Berlin or Brussels, but to Beijing.

European leaders are expected to press Lew on an eagerly anticipated free-trade agreement.


A study by the European Commission found that a deal could increase European Union exports to the United States by as much as 28 percent, a boost for the flailing European economy.

‘‘The European Commission is ready with a proposed mandate for the future negotiations,’’ said Karel De Gucht, the European trade commissioner, in a statement last month. ‘‘We can now roll up our sleeves and get down to the business of preparing negotiations.’’

The Treasury official said: ‘‘We will seek an ambitious, comprehensive, and high-standard agreement.’’ The official added that such an agreement would include ‘‘full elimination of tariffs, reductions in nontariff barriers, and disciplines that address emerging challenges such as state-owned enterprises and localization barriers.’’

Financial regulations, including a proposed European tax on financial transactions, are expected to be a major subject of negotiations as well.

But concerns over growth, austerity, and stability in the eurozone looked certain to be the central topic of negotiations yet again.

Speaking at a conference in China on Sunday, Christine Lagarde, the managing director of the International Monetary Fund, also reiterated her concerns about growth.

‘‘Low and lopsided growth is not enough,’’ Lagarde said at the Boao Forum for Asia annual conference, citing the continuing troubles in Europe. ‘‘It is not enough of a real recovery. It is not enough of a global recovery.’’