On his first official trip to Europe as head of the United States Treasury, Secretary Jack Lew urged European political and financial leaders to rethink the painful austerity plans they have enacted to address large debts and deficits across the continent and in some of Europe’s largest economies, including Spain, France, Italy, and Portugal.
European austerity has driven unemployment in the Eurozone to record highs and pushed the continent back into recession. With that in mind — and with the European economy putting headwind on the American recovery — Lew pushed European leaders to focus more on demand and employment than on deficits and debt, the Associated Press reports:
Lew, who became treasury secretary in February, started his first official trip to Europe with a meeting with EU Commission President Jose Manuel Barroso. He also met the EU’s top economic and monetary official, Commissioner Olli Rehn, and EU Council President Herman Van Rompuy.
“I was particularly interested in our European partners’ plans to strengthen sources of demand at a time of rising unemployment,” he said, speaking alongside Van Rompuy.
While austerity was meant to address deficits, it hasn’t done a particularly strong job on that front either. Countries have missed deficit targets because of slumping growth caused by rapid fiscal contraction, resulting in an austerity death spiral: countries cut spending to reduce deficits, but those spending cuts lead to slower growth that in turn makes deficits larger, causing calls for even deeper spending cuts. The United Kingdom, for instance, stands on the brink of its third recession in four years even as its austerity measures have barely achieved deficit reduction at all.
The U.S. has proceeded toward recovery much faster than its European counterparts because it focused on demand with a large stimulus package in 2009; since then, Republicans in Congress have turned the conversation to reducing spending and blocked efforts to further boost demand and employment, including the American Jobs Act, which economists said would create more than a million jobs. As a result, government spending has plateaued in the last three years and failed to pull the economy toward a full recovery as it typically has after American recessions.