By Ambrose Evans-Pritchard Friday 13 February 2015
Washington blames Europe for the lack of global recovery and is losing its patience with EMU creditor states that fail to pull their weight
President Barack Obama has seized on the Greek crisis to push for a broader reflation strategy in Europe Photo: REUTERS
The Obama administration has leapt to the defence of Greece, warning Germany and Europe’s creditor powers that they must meet Athens half-way to avert a potentially dangerous rupture and a euro break-up.
Caroline Atkinson, the US deputy-national security adviser, said the Eurozone authorities had imposed the main burden of adjustment on the weaker deficit states and should do more to accept their share of responsibility for the euro crisis. “They have asymmetric rules. They need to make it socially fairer,” she said.
“It is important for creditors to take into account that Greece has had a very sharp drop in incomes, real wages, and output as well as a big rise in unemployment,” she told a gathering at Chatham House in London.
“Greece has moved into primary surplus. How much more fiscal consolidation is necessary?” she said. The comment will be music to the ears of Greek finance minister Yanis Varoufakis, who wants a cut in the EU-IMF Troika target for the primary surplus to 1.5pc of GDP from 3pc this year and 4.5pc next year.
Mrs Atkinson said the White House is relieved that “both sides” are starting to pull back from the brink, a clear warning that Washington is just as exasperated with the high-handed approach of Eurozone creditors as it is with the leftist Syriza government in Athens.
“We believe it is strongly in the interests of the Greek people and Europe more generally that Greece and its creditors work out a compromise for Greece to stay in the euro and thrive in the euro,” she said.
The two sides have toned down the rhetoric slightly and agreed to start technical talks but each is in a different cognitive universe on the core dispute over austerity and debt relief.
The US administration does not share the widespread view in Europe that there is little risk of contagion if the European Central Bank cuts off liquidity support for the Greek banking system and forces the country out of the euro.
President Barack Obama has seized on the Greek crisis to push for a broader reflation strategy in Europe. “You cannot keep on squeezing countries that are in the midst of depression. At some point there has to be a growth strategy in order for them to pay off their debts,” he said earlier this month.
Washington is increasingly disturbed by the successive downgrades to global growth forecasts over recent months, fearing that the world’s fragile recovery may stall if Europe and Asia continue to rely on the US to carry the international system.
“The global economy is falling short and this is of deep concern to the US, and a key part of that weakness is tepid growth in the Eurozone. We think it is important that all major economies are pulling in the same direction,” said Mrs Atkinson.
She praised the success of Germany’s export machine but said the country must do more to boost global demand and limit its current account surplus, running at over 7pc of GDP and now a bigger problem for the US than trade flows from either Japan or China.
“We believe more spending on well-designed investment and consumption would be helpful in trying to reduce Germany’s large imbalances and help support demand, not just in the Eurozone, but also in the rest of the world,” she said.
The chief critique by US officials and the International Monetary Fund is that Germany is pursuing a balanced budget at a time when the Eurozone is still struggling to recover from a six-year slump that is proving more intractable than the equivalent years in the Great Depression. The US Treasury Secretary, Jacob Lew, warned last week that the regions risks a "Lost Decade" if it does not change course soon.
Mrs Atkinson described Europe’s insistence on structural reform rather than stimulus as a false dichotomy since one compliments the other. "You need both," she said, arguing that a culture of “reverse fiscal dominance” had taken hold as countries become overly alarmed by debt burdens.
While she tactfully refrained from pointing out that fiscal contraction has pushed debt ratios even higher in a string of Eurozone countries and has therefore proved self-defeating on its own terms, she left little doubt that the White House's confidence in the macro-economic judgement of the EMU policy elites is near exhaustion.