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Treasury secretary talks up policies to spur demand in Europe

U.S. Treasury Secretary Jack Lew addresses a news conference after meeting European Council President Herman Van Rompuy (not pictured) in Br
U.S. Treasury Secretary Jack Lew addresses a news conference after meeting European Council President Herman Van Rompuy (not pictured) in Br

By Anna Yukhananov

BERLIN/PARIS (Reuters) - Treasury Secretary Jack Lew on Tuesday urged countries with a trade surplus to boost domestic consumption, underlining a divergence of views between Washington and Europe's economic powerhouse Germany on austerity policies.

On his first official visit to Europe, Lew stressed the need to strike the right balance between efforts to support growth while improving strained public finances - a stance that found support in particular from France.

Germany has the euro zone's biggest trade surplus and has in the past rebuffed pressure to shift policy to bring about a rebalancing of commercial flows in Europe.

"The driver for economic growth has got to be consumer demand ... policies to help to encourage consumer demand in countries that have the capacity would be helpful," he said at a news conference with German Finance Minister Wolfgang Schaeuble.

Lew has pressed European officials to moderate austerity measures in order to boost growth, and called on surplus countries like Germany to boost their consumption to help pull the continent out of the doldrums.

A U.S. Treasury official told reporters travelling with Lew from Berlin to his next stop in Paris that the United States and Germany disagreed on the extent to which budget austerity can slow economic growth.

But the official, speaking on condition of anonymity, said Europe was aware of the need to boost demand and combat persistent unemployment, adding that talks between the two officials had focused on areas of agreement.

For their part, Schaeuble and Lew publicly played down any differences in their views, with the German arguing that growth and budget consolidation were not mutually exclusive.

"Nobody, including in Europe, sees this contrast between fiscal consolidation and growth. Our common position is of growth-friendly consolidation or of sustainable growth, however you want to call it," Schaeuble told reporters.

STRIKING THE RIGHT BALANCE

After meeting French Finance Minister Pierre Moscovici in Paris, Lew said the two were on the same wavelength about reviving growth and tackling budget deficits.

With its own finances highly strained and growth faltering, France has been more open than Germany to potential policy tweaks that would boost growth while improving public finances.

"Our view is that there needs to be a balanced approach between growth and fiscal consolidation," Lew said in a joint news conference with Moscovici.

"All tools need to be considered. Our encouragement is to use the leverage that is appropriate in Europe."

Germany, Europe's biggest economy, argues that budgetary rigor is not incompatible with growth, and is necessary to convince markets that governments are sticking to their spending diets in order to avoid another sovereign debt crisis

Lew stressed the United States wanted a strong Europe.

"As we continue to address many of our long-term challenges, our economy's strength remains sensitive to events beyond our shores. We have an immense stake in a prosperous Europe," he said.

Later, aboard Lew's plane, the U.S. Treasury official told reporters there was a pragmatic shift underway in Europe that put less emphasis on budget austerity and more on structural economic reforms.

"We have made the case that, much as we have in the United States responded to the economic cycle and what it takes to keep growth going, Europeans need to look as well what they can do to generate more demand in their economy," Lew said in an interview with National Public Radio.

Lew is met European Union officials in Brussels and European Central Bank President Mario Draghi in Frankfurt on Monday. He is a budget expert, and close confidant to U.S. President Barack Obama, which may help in his dealings with European officials about deficits and debt.

(Additional reporting by Annika Breidthardt and Noah Barkin in Berlin, Leigh Thomas in Paris, and Susan Heavey in Washington; Writing by Madeline Chambers and Tim Ahmann; Editing by Catherine Evans)

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