United States Treasury Secretary Jack Lew used his first official visit to the European Union to urge leaders there to rein in their austerity efforts and instead focus on economic growth. A week later, it appears the pressure may have worked, as Euro leaders ahead of the G20 summit in Brussels this week pledged to lessen their austerity efforts in the near future, Reuters reports:
The euro zone will slow its budgetary belt-tightening to help reinvigorate economic growth, a top EU official said on Thursday, highlighting a policy shift the United States has long been pressing for.
“They are preaching to the converted,” EU Economic and Monetary Affairs Commissioner Olli Rehn told Reuters.
While European leaders argue that they had no choice but to pursue austerity in the wake of the financial crisis, when bond yields rose and the financial stability of nations like Greece, Italy, and Spain was in doubt, the focus on debt reduction has hampered economic growth. Eurozone unemployment is at record highs and the continent is back in a recession, and even the largest European economies have lagged. Great Britain, which has its own central bank and isn’t tied to the Euro, has also pursued austerity, and the results have been similar: unemployment has continued to rise and the country is on the brink of its third recession in four years.
The United States grew immediately after the recession, thanks in large part because it embraced stimulative policies instead of immediate austerity. Despite its anti-austerity urgings to the Europeans, America has since turned its attention to deficit reduction, and growth has slowed because of it. Government spending has plateaued since 2010, so instead of sparking recoveries as it traditionally has, fiscal policy has acted as a drag on the economy. The Federal Reserve has aided the recovery with stimulative monetary policies, but with borrowing costs at historic lows and unemployment still high, the U.S. could stand to heed its own advice and focus on immediate growth instead of the size of its deficits, which would naturally shrink as the economy grows anyway.