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May 28, 2010
US Treasury Secretary Timothy Geithner said on Thursday Europe should follow China's lead and boost growth since US consumers can no longer support the global economy alone.
Geithner also said ahead of a summit of the G20 group of leading economies in Canada in late June that the United States and Europe were in "broad agreement" over the need to put into place tighter lending rules for banks.
"If the world is going to grow at its potential then we are going to have a more balanced pattern of growth globally," Geithner said after talks in Germany, Europe's biggest economy.
"In the United States we are trying to make sure that growth ... comes with more savings, more private investment. US consumers are going to be less of a source of demand for the world in the future."
He pointedly drew the contrast between Europe and China.
"You can see China recognising that imperative and putting in place a very strong program of reforms to make sure that growth is coming more from domestic demand ... Already consumption is growing much more rapidly.
"The broad challenge of making sure that global growth in the future is more balanced and more sustainable is important and something leaders all agreed and committed to."
But Geithner, who held talks with his German counterpart Wolfgang Schaeuble, sounded a conciliatory note after criticism that austerity cuts by European governments to reduce deficits were jeopardising global growth.
"We all understand and we all agree that part of global recovery, part of making sure our economies are growing ... is to commit to clear objectives for reducing our fiscal positions to sustainable levels over the medium term," Geithner said.
"That is absolutely essential, we all agree on that," he said.
"We are going to get there at somewhat different paces, the magnitude of adjustment will differ, as we all come to this from different positions, with different underlying growth rates, different overall debt burdens."
Alongside Greece, Portugal and Spain -- all of whom have seen their borrowing costs rise sharply in recent months as investors fret over their solvency -- other EU members like Italy and Britain are slashing spending.
Germany is also set to follow suit, while France also wants to tighten its belt.
Geithner met Jean-Claude Trichet, president of the European Central Bank in Frankfurt late Wednesday and Bundesbank head Axel Weber on Thursday. On Wednesday he held talks in London with George Osborne, Britain's new finance minister.
The flurry of meetings is in preparation for a get-together of G20 finance ministers and central bank chiefs in Busan, South Korea on June 4-5 and the leaders' summit in Toronto on June 26-27.
The main aim is to agree on tighter and better coordinated financial regulation in the wake of the financial crisis, with the focus on a possible levy on banks, tougher capital requirements for lenders and improved transparency on financial products.
Geither said that preparations were proceeding well, and that the world was "in a very good position to put in place a much better system than we had going into this crisis."
But he added that some countries had "slightly different approaches" and that there remained some areas where further talks were needed.
"I don't think we will know yet what separates us until we get to the next stage of discussions... I think we all agree we want to have more conservative restraints on capital and leverage," he said.
"We want to design them carefully in a way that makes the system more stable in the future but doesn't create a risk of financial headwinds to the recovery we are seeing happening."