Differences on economic policy between American and European finance officials persisted at a G7 meeting in Marseille, France this weekend. Central bankers and finance ministers from the world’s largest economies could not agree to undertake specific steps to revive growth and combat the European debt crises.
Whereas the United States urged Europe’s strongest economies to provide “unequivocal” support to the heavily indebted states in the periphery of the eurozone, Germany reiterated its commitment to fiscal consolidation and austerity.
The two sides of the Atlantic have been divided on monetary and trade policy with the Americans attempting fiscal stimulus and insisting on a “rebalancing” of global commerce that would reduce the dependence of net exporters as China and Germany on American consumption. These countries are critical of the expansionary monetary policy of the American Federal Reserve in turn which the Chinese in particular have chastised as a cloaked method of driving down the exchange rate of the dollar and artificially enhancing American competitiveness.
China keeps its own currency undervalued to help exporters. American calls to change this policy appear to have largely fallen on deaf ears.
German chancellor Angela Merkel also resisted American pressure for a trade accord at the G20 summit in Seoul, South Korea in November. “What’s important is that we don’t resort to protectionist measures,” she said at the time before suggesting that deficit countries had a responsibility to improve their own competitiveness.
In the task ahead, the benchmark has to be the countries that have been most competitive, not to reduce to the lowest common denominator.
President Barack Obama urged continued fiscal stimulus in response to lackluster economic growth throughout the industrialized world at a meeting of G20 leaders in Toronto, Canada last summer but was overruled by a majority of developed nations. His administration is projected to borrow up to $1.3 trillion this year to mend its shortfall, an amount that equals 9 percent of gross domestic product.